The Secure Act 2.0 was recently signed into law, and it has numerous changes for retirement rules and regulations. It is a sweeping set of legislation passed by Congress to address the needs of American workers and retirement. It expands access to employer-sponsored retirement plans, making it easier for business owners to offer 401(k)s and other plans without complex regulations or high costs. Here's what you need to know about the new law and how it could affect your retirement planning.
Employer Plan Impacts
Few benefits can have such a positive long-term impact on employee financial stability like the company retirement plans, especially 401(k)s. Some of the changes for employer sponsored plans, including 401(k)s, include:
Required Minimum Distributions (RMDs)
- Incentivizing employers to automatically enroll their employees in a workplace retirement plan. Beginning in 2025 employers must automatically enroll eligible employees if they have a company retirement plan. With auto enrollment, employers can ensure their workforce is taking advantage of the power of compounding interest to achieve their retirement goals.
- Allows part-time employees (who meet minimum annual hour requirements) the chance to qualify for employer sponsored plans - a major benefit considering nearly 17 million Americans work part-time jobs.
- Roth elections can be made for employer matching contributions. This will give employees greater flexibility with pre and post-tax dollar availability upon retirement.
- Employers can treat employees’ student loan payments as if they were employer matches of 401(k) contributions. This should encourage retirement savings by employees burdened by student debt.
- Beginning in 2025 increases catchup contribution limits for individuals 60-63. This will result in two different thresholds and amounts for catchup limits.
- If you are starting a new retirement plan for your company, be sure to investigate the potential tax credits associated with it.
RMDs were implemented in order to ensure that individuals eventually pay tax on pre-tax retirement contributions. Starting in 2023, the RMD age is increased to 73 for certain individuals. In 2032 the RMD age increases even more to age 75 for certain individuals.
Calls to Action
The Secure Act is a comprehensive and broad piece of legislation that impacts many aspects of retirement plans. Implementation dates on the various pieces vary and all details / specifics could not be covered in this article. Be sure to have a conversation with your tax and/or financial advisors before acting upon any mentioned Secure Act 2.0 changes. If you have an existing 401(k) plan it may make sense to connect with your plan administrator to determine if there are any changes you should make. If you need help from us, feel free to reach out.