With SECURE 2.0, employees can expect change in the form of new voluntary plans and 401(k) alternatives. The government is revising the Secure Act of 2019 by expanding retirement planning, increasing transparency and compliance, and simplifying access and management to such plans. Some significant changes to keep on the radar:
Extending the age for Required Minimum Distributions (RMDs)
- The current age at which you must begin distributions from your pre-tax retirement accounts is 73.
- SECURE 2.0 extends the RMD age to 75 in 2033.
Changes to Catch Up Contributions
- Catch up contributions have historically allowed those closer to retirement to be able to defer more into their retirement account beyond the annual limits. For example, in 2023 you can defer as much as $22,500 into your 401k. Those over the age of 50 can defer an additional "catch-up contribution" of $7,500. These numbers are indexed for inflation.
- Starting in 2025, individuals ages 60 - 63 will be able to make higher catch up contributions to their 401k (or other employer sponsored retirement plan) up to $10,000 - indexed for inflation.
- Starting in 2024, if you are a highly compensated employee ($145,000 or higher) and over the age of 50 utilizing catch up contributions in your 401k - these contributions will be required to be made on a Roth or after-tax basis. Historically, savers have had the ability to decide if they wanted their catch up contribution to go in pre-tax or after-tax, irrespective of their income.
Automatic Enrollment and Automatic Plan Portability
- Effective 2025, businesses adopting a new 401(k) or other retirement plan, will be required to automatically enroll eligible employees, starting at a contribution rate of 3%.
- Allows retirement plan providers to extend automatic portability services, in the event of job change, this would transfer low balance retirement accounts to your new employer retirement account.
For the majority of retirement savers, SECURE 2.0 provides advantages related retirement contributions, accessibility, and simplification. Moreover, these sweeping changes reiterate the importance of routine planning to ensure you are on track to accomplish your retirement goals and are doing the right things today to plan for your future. This new iteration has simplified rules significantly and given you more opportunities to work towards your financial freedom.
Ready to start planning your retirement?
#RetirementPlanning #401k #CFP #RMD #Wealthmanagement
