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How to Benefit from the Secure Act 2.0

May 04, 2023

The SECURE 2.0 Act was signed into law in late 2022 to add additional provisions to the SECURE Act passed in 2019. SECURE stands for Setting Every Community Up for Retirement Enhancement and aims to encourage Americans to put money toward retirement by making it easier for employers to offer retirement plans and create more savings opportunities for participants. Continue reading to learn how you can benefit from the SECURE Act 2.0.

Automatic Enrollment

Any employer that starts a new retirement plan of 401(k)s or 403(b)s after 2022 will be required to automatically enroll eligible employees with a contribution rate of at least 3% starting in 2025.

Emergency Savings

Any employer sponsored defined contribution retirement plans can add an emergency savings account for non-highly compensated employees beginning in 2024. The contribution limit will be $2,500 annually and the first four withdrawals per year will be tax-free and penalty-free. This piece of the legislation is to help people save for unexpected expenses due to the possibility of one unexpected bill causing financial turmoil.

Catch-Up Contributions

The SECURE 2.0 Act has also made changes to catch-up contributions available for retirement savings accounts.

Beginning in 2025, people aged 60 to 63 will be allowed to contribute an extra $10,000 to an employer-sponsored retirement plan. The $10,000 will be indexed based on the Internal Revenue Service’s (IRS) cost-of-living adjustment each year after that.

Individual retirement accounts (IRAs) currently have a $1,000 catch-up contribution for people aged 50 and up but in 2024, that catch-up contribution amount will also be indexed based on the IRS’s cost-of-living adjustment.

Required Minimum Distributions (RMDs)

The previous age to begin taking RMDs from your retirement accounts is 72 years old. Starting in 2023, the age to start taking RMDs is 73 years old. Also in 2033, the age to start taking RMDs is 75 years old.

The penalties for not taking an RMD is also decreased starting in 2023. Previously, the penalty was 50% of the RMD amount but now it is only 25%.

There was another change to Roth accounts for RMDs. Starting in 2024, employer-sponsored Roth accounts will no longer have RMD requirements.

Saver’s Match

In 2027, there will be a Saver’s Match which will replace a Saver’s Credit. Lower income employees will be eligible to get a federal contribution match to their retirement savings account of up to $2,000 per year. The contribution match will be 50% of the employee’s contributions but will go down as income increases.

Trying to keep up with the new legislation surrounding retirement saving and making those adjustments to your portfolio can be stressful. Instead of handling your retirement planning yourself, hire a financial advisor. Our advisors at Firethorn Wealth Partners will be able to make sure that you are taking advantage of all of the opportunities you have under the SECURE Act 2.0. Schedule a consultation with us today.

Sources:

https://www.cbh.com/guide/articles/secure-act-2-0-summary-of-key-tax-provisions/

https://www.adp.com/spark/articles/2023/01/secure-20-act-of-2022-makes-sweeping-changes-to-retirement-savings-plans.aspx

https://www.paychex.com/articles/compliance/secure-act-changes

https://news.bloomberglaw.com/us-law-week/secure-2-0-act-encourages-employers-to-expand-retirement-coverage

https://www.fidelity.com/learning-center/personal-finance/secure-act-2