Significant Changes to Retirement Savings Plans Might Increase Your Ability to Save

The SECURE 2.0 Act, a $1.7 trillion spending measure approved by Congress, makes significant adjustments to retirement savings accounts. What you should know was discussed by NBC4 with financial expert Brian Levy of BML Wealth Management.

Employers must enroll workers proactively in 401(k) plans. 

Answer: As of 2024, most businesses must automatically enroll qualified employees in a 401(k) plan, with payments ranging from 3% of their income to 10%. Employees are always free to decline or choose a different contribution level.

Part-time employees will have easier access to retirement plans offered by their employers under the new legislation. A retirement account sponsored by an employer must be open to anybody who has worked at least 500 hours yearly for two years.

Those who owe a lot in student loan debt may find it challenging to save money for retirement. How does the proposal handle the problem with student loans?

Answer: Businesses will be authorized to contribute to their employees’ retirement accounts beginning in 2024, after the individual settles their student loan debt. For instance, if you contributed $200 to your employer-sponsored 401(k) and made a $200 student loan payment, your company would match that contribution.

This will help folks who are trying to save for retirement but are being prevented from doing so by their high level of student loan debt. The implementation date is set for 2024.

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Does 2.0 make any “catch-up contributions” changes?

Answer: Yes. You may currently make what is known as catch-up payments to boost your savings rate if you are older than 50 and believe that you haven’t been saving enough. People 62 to 64 years old would be able to make an extra $10,000 catch-up payment starting in 2025 thanks to the SECURE 2.0 Act, which would provide another catch-up contribution.

The new cap would be raised to account for inflation in the future. This is particularly useful for people who started saving for retirement later in life or for those who have kids later in life and need to reduce their savings.

What about the retirees’ Required Minimum Distributions changing?

Answer: Retirement assets cannot be kept indefinitely in 401(k) and IRA accounts. The required retirement withdrawal age was increased to 72 under the first Secure Act.

Under new laws, the required minimum distribution (RMD) starting age would rise to 73 in 2023 and 75 in 2033. Your IRAs and 401(k)s can grow without being drained by withdrawals and taxes if the RMD age is pushed back.

The SECURE 2.0 Act would do away with RMDs for qualifying employer Roth plan accounts beginning in 2024. Previously, the regulations for Roth 401(k)s in employer plans varied from those for Roth IRAs (i.e., the latter weren’t subject to RMD).

Can you withdraw funds from your retirement account in a family emergency?

Answer: Currently, an early withdrawal penalty of 10% is imposed on the use of retirement funds before the age of 59 1/2. However, the new legislation introduces a $1,000 penalty-free withdrawal limit. The money may only be taken once a year and must be used for an urgent need, such as a significant medical expenditure.

These modifications are meant to help families save more money for the future and improve their ability to cope with unforeseen costs due to the high rate of inflation and tight budgets.

More changes

A tax credit for individual retirement accounts (IRAs), popularly known as the “Saver’s Credit,” would be eliminated and replaced under the new law. Eligible individuals will receive a government matching contribution to their retirement account in the form of the Saver’s Credit rather than a nonrefundable tax credit. The tax year 2027 will mark the beginning of the new law. 

The 529 plans are tax-advantaged accounts for higher education, and Congress revised IRS regulations to allow rollovers from retirement accounts into these plans. The current federal penalty for using 529 funds for anything other than education is 10%. 

Also, the SECURE 2.0 Act authorizes the establishment of a database that may be queried to assist individuals in locating their misplaced retirement benefits. There will be a “lost and found” for retirement funds within the next two years, which the Department of Labor will maintain.



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