Congress passed the long-awaited SECURE 2.0 Act of 2022 that promises to restructure most Americans’ 401(k) plans and change pension contribution and withdrawal rules to help Americans grow and preserve their nest eggs. .
The SECURE 2.0 Act is part of the $1.7 trillion omnibus spending bill that Congress passed before the Christmas holiday shutdown, and President Biden intends to sign it into law.
So what is included in this retirement legislation? And how will this affect your money? We will tell you about the details of the SECURE 2.0 law below. Keep in mind that new laws can be complex. A Financial advice can explain the intricacies of the SECURE 2.0 Act and how it directly affects you and your financial situation.
What is the SECURE 2.0 law?
The SECURE 2.0 Act (aka Securing a Strong Retirement Act 2.0) puts in place provisions to make retirement savings easier and accessible to a wider range of people.
As of December 2019, the original SECURE Law was created to reintroduce the subject of retirement consideration on the Congressional agenda. There was a clear and growing concern about retirement savings being sidelined and in dire need of attention.
Since then, new provisions have been added to accomplish several tasks in the final bill being implemented:
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Implement mandatory automatic enrollment in company-sponsored pension plans
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Increase annual catch-up limits for contributors aged 50 and over
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Include Roth counterparty as a contribution option
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Raising the Minimum Age for Mandatory Minimum Distribution Elections
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Increase the participation of part-time employees in retirement savings plans
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Allow student loan matching
Keep in mind that this list is not exhaustive. For the full scope, here is the publication of the government of the Provisions of the SECURE 2.0 law.
Automatic registration for mandatory retirement
Automatic enrollment has been shown to significantly increase participation in retirement savings (19% to 75%), especially among groups that historically do not contribute. This includes the lowest paid workers, young people and minorities.
Automatic enrollment in 401(k) plans will not require people to contribute, it will simply provide initiative. So instead of employees having to choose whether to contribute, they’ll have to take an extra step to opt out.
Increase annual catch-up limits
Currently, if you’re over 50, you can apply catch-up contributions of $7,500 per year to a retirement plan and $1,000 to an IRA.
Section 106 of the SECURE Act maintains the $1,000 for an IRA but adds indexing.
To note: Indexing is essentially an annual review that will allow for adjustments based on market conditions such as inflation.
Section 107 Includes a separate increase in annual catch-up limits that only apply to three age categories: 62, 63 and 64 (but not 65). If you fall into one of these three ages for 2023, you are eligible to contribute up to $10,000 to a retirement plan. This will also allow indexing.
Roth correspondence
Contributors participating in corporate correspondence can now choose to receive correspondence on a Roth account. Prior to the SECURE Act, matching contributions could only be made on a pre-tax basis.
Mandatory Minimum Increase in Distribution Age
Mandatory distributions These are the mandatory withdrawals that a retirement account holder must make when you reach age 72. All of the following accounts apply:
With the SECURE 2.0 law, the age has increased from 72 to 73 in 2023. And it is expected to continue to increase – to 74 in 2029 and 75 from 2032.
Participation of part-time employees
Currently, part-time employees are only eligible for an employer-sponsored 401(k) after three years of service. With the new law in place, this period is reduced to two years. This provision applies to all part-time workers but has been mentioned to specifically address women since due to common practice (and maternity penalty) women are more likely to work part-time. .
Student loan match
Since student loans are an important factor in a person’s ability to contribute to their retirement savings, there is a provision to accommodate this situation. Under the SECURE 2.0 Act, employers are now allowed to make matching contributions to a 401(k) plan, 403(b) plan, or SIMPLE IRA for qualified student loan repayments.
The term “qualified” was included only broadly as any debt payment made for higher education purposes.
The bottom line
On December 23, 2023, Congress passed the SECURE 2.0 Act as part of the $1.7 trillion omnibus spending bill that President Biden will soon sign into law. This retirement legislation will help Americans contribute to retirement accounts and preserve their savings. In addition to automatic retirement account enrollment and Roth calculation, the bill also includes additional provisions on annuities, saver’s credit and lost retirement accounts. For specialist help relating to your personal situation, consider partnering with a licensed financial advisor for free.
Retirement advice
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