SECURE ACT 2.0: New Retirement Changes You Should Know
Last year, congress passed a $1.7 trillion spending package called the SECURE 2.0 Act. This legislation goes into effect January 1, 2023 and has something for everyone. It will bring big changes to financial planning and retirement plans. So, while you work towards building your nest egg, keep in mind these 7 key Secure 2.0 provisions.
1) Workplace automatic enrollment for retirement. Starting in 2025, employers setting up new 401(k) or 403(b) plans will be required to automatically enroll their employees in these plans, with a few exceptions. Even small businesses will get rewards for setting up retirement plans for their workers. This will encourage folks, whether they’re working long-term or part-time, to save for their future. Plus, it’s going to be easier to consider annuities as an income option when you retire.
2) Supercharged catch-up contributions. For those who may have fallen behind in retirement savings, in 2023 if your age is 50 and above, you can contribute an extra $7,500 per year to your account. Fast forward to 2025, and Secure 2.0 will boost that to $10,000 for savers aged 60 to 63. A little extra cushion for your golden years!
3) Waiting a Bit Longer for RMDs. RMDs, or required minimum distributions, now give you a bit more time. In 2023, the age for taking RMDs increased from 72 to 73. By 2033, it’ll be up to 75. This means you can hang onto your hard-earned money a bit longer before having to dip into it. And if you accidentally miss an RMD deadline, don’t sweat it. The penalty’s been reduced from 50% to 25% and even lower if you correct it on time.
4) Early withdrawal penalties eased. This legislation is also looking out for those who face tough times. It allows exemptions to the usual 10% penalty for early withdrawals from retirement accounts. For instance, if you’re terminally ill or face a family emergency, you can make limited penalty-free withdrawals. Starting in 2024, anyone can withdraw up to $1,000 annually without penalties. There are also exceptions for domestic abuse victims and those affected by federally declared disasters.
5) Finding lost retirement accounts. Ever worked somewhere, set up a retirement plan, then later forgot about it? Secure 2.0 is launching a searchable database in 2024 to help you find those lost retirement accounts. No more leaving your hard-earned money behind!
6) More flexibility with Roth 401(k) rules. For those passing on their retirement savings to beneficiaries, the rules are getting a bit more flexible. Starting in 2024, beneficiaries will have more freedom when it comes to accessing the inherited funds.
7) Help for lower-income savers. In 2027, the Saver’s Match will become available. To get this extra money for your retirement savings, you must meet specific rules in the new bill. The government will add 50% to the first $2,000 you save in a retirement account, but there are income limits. If your earnings are above a certain amount, the match gets smaller or might even go away.
Secure 2.0 also goes beyond retirement and contains these other great financial benefits:
• Inflation-adjusted charitable distributions: Starting in 2024, you can donate to charities from your retirement savings without extra taxes. The donation limit will increase with inflation, so you’re not limited to a fixed amount like $100,000.
• Student loan relief with matching contributions: Your employer can match your student loan payments with contributions to your retirement savings, helping you save for retirement while paying off loans.
• Rollover opportunities from 529 plans to Roth IRAs: Beginning in 2024, you can move up to $35,000 from a 529 plan for your child’s education to a Roth IRA for your future without extra taxes or penalties, provided you meet specific rules.
• Unexpected funds without penalties: Also in 2024, you can withdraw up to $1,000 yearly for unexpected personal or family needs without high fees, with the option to repay it over three years. However, be aware that certain savings accounts may have tax implications. Planning ahead is a good idea.
While it’s important to learn how you can benefit from increased retirement opportunities found in Secure 2.0, everyone’s financial situation is different. it’s important to get personalized advice from a qualified financial advisor. With NIHFCU Wealth Advisors you have access to an experienced financial professional who cares as much about your future as you do. Speak to a representative today.
Resource: Kiplinger
