Enhancing Your Retirement Plan through the SECURE 20 Act

The newly-enacted SECURE 2.0 Act contains significant changes that may affect how you plan for retirement. The bill, passed by Congress and signed into law by President Biden in late 2022, could help you bolster your retirement savings and income strategy. 

Here are some of the key provisions included in the new law, which are being phased in over the next several years: 

New rules now in effect

Required minimum distributions (RMDs) start after age 73

Until recently, RMDs from traditional IRAs and workplace retirement savings plans, such as 401(k) or 403(b) accounts, had to begin after reaching age 72. Now individuals can wait until reaching age 73, extending the benefit of tax-deferred growth of earnings. Distributions must commence by April 1 of the year after turning 73. 

New rules in effect in 2024

Matching contributions for those paying student loans

Employers will have the ability to offer contributions to workplace retirement savings plans that match the amount of student loan debt repaid by an individual employee in a given year. 

Rollovers of 529 education savings plan balances to Roth IRAs

Beneficiaries of 529 plans that have been in place for 15 years or more can transfer assets from the 529 plan to a Roth IRA. The transfer is subject to the beneficiary’s annual contribution limit and up to a lifetime maximum of $35,000.

This provision may alleviate a parent’s potential concern that they are over-funding a 529 plan. For example, if a child qualifies for scholarships, or school expenses are less than anticipated, leftover 529 amounts could be transferred to the beneficiary’s Roth IRA.

Requires catch-up contributions to be made as Roth contributions using after-tax dollars

Catch-up contributions for participants aged 50 or older must be made on a Roth basis under 401(k), 403(b), and governmental 457(b) plans. However, the requirement applies only if the employee’s prior-year wages from the employer sponsoring the plan exceed $145,000 in the previous taxable year. The option to make pre-tax catch-up contributions will continue in 2023. When deciding whether to make pre-tax or Roth contributions for 2023, consider that your future catch-up contributions will have to be Roth contributions if you earn more than $145,000.

No RMDs for Roth workplace plans

Under current law, those with Roth 401(k)s or Roth 403(b) plans are subject to the same required distribution rules as standard workplace plans. However, the new law will eliminate RMDs for workplace-based Roth savings plans, comparable to current rules for Roth IRAs. 

Emergency savings

New emergency savings accounts, associated with an employer’s retirement plan, can be established for many employees. It will allow them to accumulate up to $2,500 in the account, with penalty-free access to the funds allowed once a month, to meet current needs.

Other key changes beyond 2024

Other provisions of the SECURE 2.0 Act that will take effect in 2025 include:

• The ability of workers ages 60 to 63 to make catch-up contributions of $10,000 per year above the standard limit for workplace retirement plans.

• A requirement that employers with 401(k) or 403(b) plans automatically enroll eligible employees in a workplace savings plan, starting at a contribution rate of at least 3% (workers can choose to opt out of the plan). 

• The ability of part-time workers to participate in a workplace retirement plan once they’ve worked at least 500 hours for two consecutive years, rather than the current three-year threshold.

What does it mean for you?

How can these changes enhance your own retirement savings plan? It may be beneficial to talk to your financial advisor to determine how you might be able to leverage the new rules listed here and others to help secure your retirement savings plan.

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Michael D. Lanuto, CRPC®, AWMA® is a Financial Advisor with S.M. Miller & Associates, a private wealth advisory practice of Ameriprise Financial Services, LLC. in Albany, NY.  He specializes in fee-based financial planning and asset management strategies and has been in practice for 7 years. To contact him: 518-949-2039; 4 Atrium Drive, Ste 200, Albany, NY, 12205; Michael.Lanuto@ampf.com; https://www.ameripriseadvisors.com/michael.lanuto/lp/request-contact/3/. 

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