Are you familiar with the Setting Every Community Up for Retirement Enhancement Act?
Signed into law in 2019, the legislation altered retirement savings plans in the first major way since the Pension Protection Act of 2006.
Since 2019, though, things have changed! SECURE 2.0, as it’s being called, was introduced in December 2022, with additional provisions in tow, and many important changes for consumers to consider!
What Is the Secure Act?
The SECURE Act was put into effect to adjust some of the most popular means of retirement planning. Simply put, the act made the following changes:
- The minimum age for required distributions of retirement plans was adjusted by 1.5 years from 70.5 to 72 — allowing older workers to continue to contribute to their IRAs for longer
- Individuals were able to use 529 plans to pay off student loans
- The “Stretch IRA” was eliminated, no longer forcing non-spouse beneficiaries to withdraw or pay tax on distributions within 10 years
- 401(k) plan administrators had an easier time offering annuities.
What is SECURE 2.0?:
SECURE 2.0 was an amendment signed on December 23, 2022, passed under the Biden Administration as part of the Consolidated Appropriations Act, designed as a means to reform methods of retirement planning. The administration saw it as a net positive for those planning for retirement by simplifying the process and increasing the number of businesses offering retirement plans — thus improving the path to retirement for many in the United States.
Consider the following adjustments as a result of SECURE 2.0:
Required Minimum Distribution
While there are many to consider, the first of the SECURE 2.0 is Required Minimum Distribution or RMD. RMDs are put in place as a requirement for retirees to begin taking from their retirement accounts by a certain age.
With the passing of SECURE 2.0, the age of RMDs has INCREASED to 73 in 2023. However, a scale has been put in place to increase the age to 75 by 2033.
Be aware: not taking the RMD will result in a penalty. SECURE 2.0 has reduced that penalty from 50% to a maximum of 25%, meaning that 25% of the amount that you fail to take out of retirement accounts would be forfeited to the IRS.
The good news? RMDs are expected to be eliminated starting in 2021 for Roth 401k accounts.
Enrollment
Retirement accounts should be opened and built upon as soon as possible so that you have the most time to save up for retirement. Another benefit to SECURE 2.0 is Automatic Enrollment starting in 2025, which sees employees of companies participating in retirement plans enrolled at a rate starting at 3% of eligible wages.
Playing Catch-Up
Starting in 2025, account holders aged 50 and up will be able to contribute an extra $10,000 to their retirement accounts. Known as Catch Up Contributions, this adjustment will benefit workers who may not have been able to contribute enough early in their careers.
Student Loans
Paying student loans? These contributions can eat up additional funds better served for retirement. In 2024, employers can make contributions on behalf of employees paying off student loans instead of adding to their retirement accounts.
The SECURE 2.0 act is full of major overhauls to retirement planning. We encourage you to read up on the SECURE ACT OF 2022 for full details.
Retirement planning on your mind? Talk to an LPSC advisor before you make a final decision
SOURCES:
https://www.finance.senate.gov/download/retirement-section-by-section-
https://www.adp.com/spark/articles/2023/01/secure-20-act-of-2022-what-it-means-for-your-business