SECURE 2.0 Act: The Changes That May Impact Your Retirement Savings

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The changes in the financial landscape that may impact your retirement savings due to the SECURE 2.0 spending bill, which President Biden recently signed into law. The truth is only about half of U.S. workers have retirement plans, a serious issue that the SECURE 2.0 Act hopes to address with the following provisions.

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SECURE 2.0 Act: 5 Changes Taking Effect Immediately

  • 401(k) hardship withdrawals: Employees can take one penalty-free 401(k) distribution per year of up to $1,000, with the option to repay the distribution within three years. These withdrawals can be used for medical expenses, funeral expenses, or tuition and related educational expenses. However, a withdrawal must be due to an "immediate and heavy financial need,” according to the IRS.
  • Part-time hours: Part-time workers now only need to work between 500 and 999 hours for two consecutive years to be eligible for their company's 401(k) plans, rather than the previous requirement of three consecutive years.
  • Saver’s match: Workers at a low- to mid-income level will will receive a 50% match up to $2,000 from the government when they save through a workplace retirement plan. This contribution will be deposited into the retirement accounts and cannot be withdrawn without penalty. The match phases out completely at $71,000 for married couples filing jointly, $35,500 for single-filers, and $53,250 for heads of households. 
  • RMDs: Under current law, people with 401(k) plans must take out money from their accounts starting at age 72 to ensure they use it rather than pass it down through their estates. The new proposal increases that mandatory age to 73 in 2023 and 75 in 2033.
  • Employer-based emergency savings account: Unless an employee opts out, employers can automatically opt workers into a savings account, contributing no more than 3% of the employee’s salary, up to $2,500 per year. Contributions to these accounts are made with already-taxed money, and withdrawals are tax-free.

3 Changes Taking Effect At A Later Date

  • Automatic enrollment in retirement plans: Starting in 2025, employers will be required to automatically enroll employees in 401(k) and 403(b) plans. Exceptions include small businesses with fewer than ten employees, churches, and governmental plans.
  • Student loan repayments: Beginning in 2024, student loan payments will count as retirement contributions and will be eligible for employer matching.
  • Catch-up contributions: Starting in 2025, those 60 to 63 can direct an extra $10,000 annually towards their 401(k)s (currently, it's $7,500). 

It may be worth reviewing your retirement savings strategy in light of these legislative changes.

Article by Jonathan Peters, Sr. Financial Advisor, Krim Associates