Saving for retirement has long been a challenge, especially for those with lower incomes and young adults struggling with student loan debt. Setting aside some of your earnings today remains essential, but it may start to get easier for some, thanks to the passage of the SECURE 2.0 Act in the final days of 2022.
Though many of its provisions won't take effect for a few years, they're still worth keeping on your radar. Here are five of the most significant.
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1. Automatic retirement contributions
Several studies have shown that automatic enrollment in 401(k) and 403(b) plans dramatically increases participation. The new law will require businesses to automatically enroll participants in their workplace retirement plans with a contribution rate of at least 3% and not more than 10%, beginning in 2025. The contribution rate will automatically increase by 1% per year until it reaches at least 10%, but no more than 15%.
Employees who don't wish to participate will still have the opportunity to opt-out, and not all businesses will have to offer automatic enrollment. Existing workplace retirement plans are grandfathered in, and businesses with 10 or fewer employees, companies that have been in business for less than three years, church plans, and government plans don't need to have automatic enrollment.
2. Saver's Match
The SECURE 2.0 Act also calls for a new Saver's Match to replace the existing Saver's Tax Credit. This will go into effect in 2027. Instead of your retirement contributions reducing your tax bill, the government will automatically deposit funds into your retirement account to help your balance grow.
The maximum contribution is 50% of your retirement plan contributions, up to $2,000 per person. However, those with higher incomes may not be able to claim the full match. As with the current Saver's Tax Credit, there are income tiers that dictate the maximum match you can earn.
3. Higher catch-up contributions
Catch-up contributions are additional contributions adults 50 and older can make to retirement accounts. In 2023, IRAs have a $1,000 catch-up contribution and 401(k)s have a $7,500 catch-up contribution. Beginning in 2024, the government will index the IRA catch-up contribution to keep up with inflation. This will allow older workers to set aside even more money in retirement accounts in future years.
Starting in 2025, the government will also enable workers aged 60 to 63 to contribute even more to their retirement accounts. Their maximum catch-up contribution will be the greater of $10,000 or 50% more than the regular catch-up contribution for adults aged 50 to 60. These limits will also be indexed for inflation in future years.
4. Employer matches for student loan payments
Those struggling with student loan debt aren't always able to take advantage of the employer matches their workplace retirement plan offers. If they can't spare any money to put into their retirement accounts, they could miss out on thousands of dollars in company-matched funds, which could grow to be worth tens or even hundreds of thousands of dollars by the time they retire.
Beginning in 2024, employers will have the option to make matching contributions to employees' retirement plans if the employee makes qualified student loan payments. Employers won't have to offer a student loan match option, but it will undoubtedly be a useful perk for companies trying to attract young workers.
5. Older age for beginning required minimum distributions (RMDs)
Current law requires seniors to begin taking mandatory annual withdrawals, known as required minimum distributions (RMDs), from all their retirement accounts (except Roth IRAs) starting in the year they turn 73.
The SECURE 2.0 Act will increase RMDs to age 75, beginning in 2033. It also eliminates the need to take RMDs from Roth 401(k)s starting in 2024.
These changes may not all affect you, but keep them in mind. Note when each change goes into effect and plan to adjust your retirement savings strategy, as necessary. If you have any questions about the changing rules for your retirement accounts, reach out to your plan administrator.
