Secure Act 2.0: Enhancing Retirement Savings

May 10, 2023

Secure Act 2.0 was signed into law on December 29, 2022.  Some of the legislative changes derived from this Act take effect immediately while others will take effect at a later date.  The legislative changes range from impacts to employer plans and those just starting to save to retirees and Required Minimum Distributions. The bottom line is that Secure Act 2.0 provides major beneficial changes to assist American workers in achieving their retirement goals.   As someone that is currently saving for retirement, or is already retired, you should be familiar with these changes and more importantly work with your financial advisor to ensure you are taking advantage of those changes that could have a significant impact on your retirement savings plan.

Here are some of the key takeaways from Secure Act 2.0 that you should be aware of:

-Automatic enrollment and automatic employer plan portability - Starting January 1, 2025, the new legislation requires new employer sponsored plans (i.e., 401k/403b/457 plans) to automatically enroll eligible employees starting with a contribution rate of 3%.  In addition to this change if an employee changes jobs, then the plan sponsor for their new employer plan will have the ability to automatically rollover that employee’s retirement account into their new employer plan.  This will be especially helpful for lower balance accounts that the employee would typically cash out and thus not continue to save towards retirement.

-Higher Catch-up Contributions - Beginning January 1, 2025, individuals between the ages of 60 to 63 will have the ability to make a catch-up contribution of up to $10,000 annually to their employer sponsored retirement plan.  The catch-up amount for this year for someone age 50 and older is $7,500.  Starting in 2024 the Individual Retirement Account or IRA catch-up contribution limit for someone age 50 and older will be indexed to inflation.  This means that the catch-up contribution limit could increase every year based on cost-of-living increases determined by the Federal Government.

-Roth Matching - Employers will have the ability to make matching contributions into a Roth account where previously they were pre-tax.  The Roth contributions would be considered income to the employee, and be tax deductible by the employer, but would grow Federally and State tax free.

-Required Minimum Distributions (RMD) - Starting January 1, 2023, the age at which one will need to start taking their RMD increased to 73.  This will increase to age 75 in the year 2033.

As always, consult your financial advisor or tax consultant to understand how the changes brought on by Secure Act 2.0 apply to your personal situation.