In 2019, the SECURE Act, Setting Every Community Up for Retirement Enhancement, was passed which made changes to how you can save and withdraw retirement funds. At the end of 2022, the SECURE Act 2.0 was passed, which added many more retirement-related changes to the original legislation that may affect your retirement saving strategies. Continue reading to learn what you need to know about SECURE Act 2.0.
There are three goals that the SECURE 2.0 Act aims to accomplish:
- Help people save more for retirement,
- Improve retirement rules,
- Lower the cost for employers to set up retirement plans.
Changes To Required Minimum Distributions
As of January 1st, 2023, the age to begin taking required minimum distributions (RMDs) has been increased from 72 to age 73. Retirement account owners now have an additional year before mandatory distributions begin. The Act also further increased the required minimum distribution age to 75 starting on January 1, 2033.
Prior to 2023, the penalty for not taking an RMD was 50% of the amount that should have been withdrawn. Starting in 2023, the penalty has been reduced to 25% of the RMD amount. If the person can correct the failure of not taking an RMD and submit a corrected tax return within the timely manner, the penalty is reduced to 10%.
Increased Catch-Up Contributions
Starting in 2024, the allowable $1,000 catch-up contributions for people 50 years old or older will be indexed to increase based on the Internal Revenue Service’s cost-of-living adjustments.
In 2025, people who are 60 to 63 years old will be allowed to make annual catch-up contributions of the greater of $10,000 or 150% of the standard catch-up amount in 2024 to workplace retirement plans, including 401(k)s, 403(b)s, and 457 plans. For SIMPLE IRA plans, the catch-up contribution will increase from $3,500 to the greater of $5,000 or 150% of the standard catchup amount in 2025.
Automatic Retirement Plan Enrollment
In 2025, employers will be required to automatically enroll all eligible employees into a 401(k) or 403(b) plan with a minimum of a 3% participation amount, but no more than 10%. Employees are allowed to opt out of the retirement plan if they wish and employers are allowed, and encouraged, to offer financial incentives to motivate employees to participate.
Expanded Access to Retirement Funds
Under the new law, you now have more access to your own retirement funds. Starting in 2024, you can take up to $1,000 out of your retirement savings once per year as an emergency fund without having to pay the 10% early withdrawal penalty. Also starting in 2024, employees can set up a Roth emergency savings account with up to $2,500 per person. Survivors of domestic abuse will be allowed to withdraw either $10,000 or 50% of their retirement account, whichever is less, without any penalties.
When planning for retirement, it’s important to understand all of your opportunities to save. If you need assistance getting financially ready for retirement, our advisors at Curo Wealth Management are happy to help. We can help you pick the most beneficial retirement planning strategies based on our knowledge, expertise, and legislation. Schedule a consultation with us today to get started.