Increase Retirement Savings with the Help of SECURE 2.0
The $1.7 trillion omnibus spending bill passed just before Christmas contains the SECURE 2.0 Act. This act includes many provisions to help boost retirement savings. Here are some of the key highlights:
Big Changes to RMDs
The age for taking required minimum distributions (RMDs) from your retirement accounts increases from age 72 to 73 in 2023 and to 75 in 2033. If you turn 72 in 2023, you get an extra year for your investments to grow before having to withdraw. If you have already started taking RMDs, you must continue doing so.
Starting in 2023, the penalty for not taking RMDs will fall from 50% to 25% of the amount not taken.
Starting in 2024, Roth accounts in employer retirement plans [401(k), 403(b), TSP] will be exempt from RMDs. Right now, only Roth IRAs are not subject to RMDs.
Higher Catch-Up Contributions
When you reach age 50, the IRS allows you to make catch-up contributions to your retirement accounts on top of regular contributions. In 2023, the catch-up contribution is $1,000 for an IRA and $7,500 for an employer retirement plan.
Starting in 2025, the catch-up contribution for those ages 60 through 63 will rise to $10,000 for workplace plans and will be indexed for inflation.
Starting in 2024, the $1,000 catch-up for IRAs will finally be indexed for inflation.
Now for some bad news. If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will now have to be made to a Roth account with after-tax dollars. This means that higher income workers will lose this tax deduction. UPDATE: The IRS has put off implementing this until 2026.
Matching for Roth Accounts
Employers can now offer the option of having your vested matching contributions go into a Roth account. Prior to SECURE 2.0, all matching contributions had to go into a Traditional (tax-deferred) account. Check with your employer when they plan to implement this.
More Ways to Save
Starting in 2024, your employer can add an emergency savings account option in your retirement plan. It would allow you to save up to $2,500 in a designated Roth account. The first 4 withdrawals in a year would be tax-free and penalty-free. Contribution may also be eligible for a match - check with your employer.
Starting in 2024, employers will be able to match employee student loan payments with matching payments in a retirement account.
After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and a lifetime limit of $35,000.
Starting in 2025, businesses adopting new 401(k) and 403(b) plans have to automatically enroll eligible employees at a contribution rate of at least 3%. The law also makes it easier for employees to transfer low balances to a new plan if they change jobs - so they just don’t cash them out!
Look folks, putting money aside for retirement and emergencies is important. So much so that even Congress is on board!