5 ways how Secure Act 2.0 is impacting your retirement plans (401k, 403b and others)

The SECURE 2.0 Act seeks to achieve an increase in retirement savings among people, strengthen retirement laws, and reduce the cost to employers for establishing retirement plans. While certain rules have already taken effect (as of January 1, 2023), others won’t be until 2024, 2025, or even later.

Five highlights of Secure Act 2.0 are:

1) Automatic Retirement Plan Enrollment

This provision of the Secure Act 2.0 aims to increase participation in workplace retirement plans and encourage Americans to save more for their future. By automatically enrolling employees in a 401(k) or 403(b) plan, the act helps overcome the barrier of inertia that often prevents workers from enrolling in a plan, even when one is available to them.

Under this provision, employees will have the option to opt out of the plan or change their contribution rate if they wish. This provides employees with the flexibility to manage their own retirement savings and ensures that they are in control of their financial future.In addition, the requirement for automatic enrollment with a minimum contribution rate of 3% and a maximum of 10%.

While the provisions only apply to new 401 k and 403 plans, employers with existing plans that don’t have auto enrollment and escalation features might be out of date from the perspective of attracting and retaining employees.

2) New Required Minimum Distribution (RMDs) Rules

This provision of the Secure Act 2.0 seeks to provide retirees with more flexibility and control over their retirement savings. By increasing the age at which retirees must begin taking RMDs, the act allows them to keep more money in their retirement accounts for a longer period of time, potentially growing their savings and providing more security in retirement.

For individuals turning 72 after December 31, 2022 and before January 1, 2033, the new RMD age of 73 will provide an additional year to allow their retirement savings to grow, and for individuals turning 74 after December 31, 2032, the new RMD age of 75 will provide an additional two years of growth potential for their retirement savings

3) Penalty Free Emergency early withdrawal effective January 2,2024

By allowing individuals to access up to $1,000 once a year for emergency personal or family expenses without paying the 10% early withdrawal penalty, the new rules provide flexibility for individuals who may face unexpected expenses, such as medical bills or other emergencies.

However, at Plootus we believe that saving for your retirement nest comes first. Withdrawals from the retirement account might cause potential delays in building one retirement nest.

4) Higher catchup contribution

This provision is designed to help older workers who may have fallen behind on their retirement savings to catch up and ensure they have the resources they need for a secure retirement.

Starting January 1, 2025, individuals aged 60 to 63 years old will be able to make catch-up contributions up to $10,000 annually, indexed to inflation. This is a significant increase from the current catch-up contribution limit of $7,500 for individuals aged 50 and older in 2023

5) Student loan debt

This provision allows employers to offer a unique and innovative benefit to their employees: matching student loan payments with contributions to a retirement account. This new benefit, starting in 2024, provides a dual incentive for employees to both pay off their student loan debt and save for retirement.

Under this provision, employers will be able to match employee student loan payments with contributions to their 401(k) or other workplace retirement plan.This provision recognizes that student loan debt is a major financial burden for many people and that it can be difficult for these individuals to also save for retirement. 

Until next time!

Sheikh Nazrana, Sunil Gangwani


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