Sun-soaked beaches. Piña coladas. The gentle whisper of waves.
Everyone has an exciting idea of a dream retirement. But between you and paradise lies bills, student loan debt, and a retirement nest egg that hasn’t quite blossomed.
Good news: Legislation in the form of the SECURE 2.0 Act (signed into law in late December 2022) was designed to help jump-start your nest egg and make that ideal retirement a reality. Whether you’re nearing retirement, a business owner who provides 401(k) plans to your employees, or a wealthy individual looking to save more, these 2023 and 2024 provisions provide a bevy of opportunities.
Let’s take a look at a few!
If you’re an individual saving for retirement:
Employer Match Mania: SECURE 2.0 is shaking things up with provisions that turn your workplace into a savings sanctuary. First up, student loan repayment matching. Yes, you read that right. Employers can now contribute to your 401(k) based on your student loan payments, effectively turning your debt into a head start for your retirement goals.
Transform Leftover 529 Funds: Remember those unused college funds gathering dust in a 529 account? SECURE 2.0 gives them a new lease on life by allowing you to roll over up to $35,000 into a Roth IRA.
A More Inclusive 401(k): Beginning in 2024, part-time employees will be able to participate in 401(k) plans after meeting 500 hours a year for three consecutive years. Previously, a part-time employee needed to reach 1,000 hours to be included. In 2025, employees who work at least 500 hours for only two years will be included.
If you’re a small business owner:
Retirement for All: SECURE 2.0 will enable you to offer starter 401(k)s. These streamlined plans, with automatic enrollment, make saving for retirement simpler, and a cost-effective perk for you to offer your employees.
Expanded Credit: Another provision boosts startup tax credits for retirement plans. Employers with 50 or fewer employees can now get 100% coverage for eligible costs, up from 50% previously.
Matching Roth Contributions: Before SECURE 2.0, employers could only match contributions to traditional pre-tax retirement accounts. The new legislation enables employers to match Roth contributions. (But remember, that match will be taxed.)
By the numbers:
Retirement Contribution Limits: The IRS has also increased the amount individuals can contribute annually to IRAs and retirement plans based on increases in cost of living, as measured by inflation. Contribution limits for 401(k)s, 403(b)s, most 457 plans, thrift savings plans (TSPs), and other qualified retirement plans rose to $23,000 for 2024, up from $22,500 this year. The annual contributions limit for traditional IRAs and Roth IRAs rose to $7,000 for 2024, up from $6,500 in 2023. There is also an additional catch-up contribution of $1,000 for those over 50.
Required Minimum Distributions: The age to begin taking RMDs increased to age 73 in 2023 and will increase to 75 in 2033. That said, the penalty for failing to take an RMD decreased to 25% of the RMD amount from the current penalty of 50% and will only be 10% if corrected in a timely manner for IRAs. Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.
Did you know?
The Secure 2.0 Act includes 90 provisions, including penalty-free withdrawals for domestic abuse survivors, inflation-adjusted catch-up contributions for people over 50, and increased contribution limits for SIMPLE IRAs. For the complete list, click here.
The Bottom Line: The SECURE 2.0 Act is designed to make retirement more accessible, more flexible, and potentially more rewarding. However, we understand all of this can feel rather overwhelming. The good news? You aren’t in this alone. Click to contact us and we can work together to discover how the SECURE 2.0 Act can work for you.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Investment advice offered through Integrated Partners, doing business as PRISM Financial Strategies, a registered investment advisor. Securities offered through M.S. Howells & Co., member FINRA/SIPC. M.S. Howells & Co, Integrated Partners and PRISM Financial Strategies are separate entities.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.