Our representatives in Congress spend lots of time actively working to pass bills into law that benefit us Americans or solve problems we face. Oftentimes, bills and other legislation that directly impact us get passed and signed into law by the president ”” and we may not hear about them on the evening news.
One newly signed law that you might not know much about, but that will directly affect your retirement plan, is the SECURE Act 2.0. It can be a heavy lift to break down the particulars of the SECURE Act 2.0, and how it relates to your personal IRA or 401(k) plans.
That being said, it”™s worth familiarizing yourself with the ins and outs of the law so that you”™re best set up for success in the future. Here are four of the most important updates to keep you in the know about the SECURE Act 2.0:
The SECURE Act 2.0 will let you save even more per year in your 401(k) plan. For Americans over the age of 50 who are looking to max out their retirement savings, this year, you will be able to make up to $6,500 in catch-up contributions to your 401(k) plan and IRA investors can contribute the same, plus an extra $1,000 per year.
If you make less than $145,000, you can choose pre-tax or Roth contributions. These catch-up contribution caps haven”™t been raised since 2006, but now, the IRS is expected to raise the limit each year.
This is big news, especially if you”™re age 60 and over and contributing to your 401(k) through catch-up payments ”” you”™ll be one step closer to stashing away more for your retirement. Another phase in comes in 2025, which is when employees between the ages of 60 and 63 can increase their catch-up contribution to $10,000 for 401(k) and 403(b) plans.
Small-business owners will have an easier time providing employees with retirement benefits because of lower costs and fewer administrative burdens. Thanks to the SECURE Act 2.0, business owners are eligible for a tax credit of up to 100% of retirement plan start-up costs for employees, and an additional $1,000 tax credit per employee based on how much the company contributes to the retirement account. This makes it less of a burden for your business to stay afloat while helping your valued employees plan for their futures.
Similarly, starting in 2025, any 401(k) plan started in that calendar year and onward will automatically enroll employees with a starting contribution of 3%, and increase each year to help employees save for themselves.
If you are a dedicated retirement saver, you get benefits too ”” the age to take your first annual Required Minimum Distribution (RMD) has increased to 73. Retirement plan savings in a designated Roth 401(k) or 403(b) account are no longer subject to RMD rules. This means employees”™ accounts can continue growing tax-free.
Now that you can wait another year or two before taking RMDs from your retirement accounts, there are many strategies to keep your taxable retirement income lower. Similarly, retirement plan savings in Roth 401(k) and 403(b) accounts are no longer subject to RMD rules allowing accounts to continue to grow tax-free.
Employees who are still paying off their student loans get added benefits. Employers will now be able to match repayments to student loans to their workplace”™s retirement plan, helping them save for retirement, while getting out of student loan debt sooner.
This is just the beginning of how the re-vamped SECURE Act changes the way that Americans can save for their retirement ”” and not all of the changes in the SECURE Act benefit everyone with a retirement plan the same way. Additional changes are on the way in the years to come and it”™s always worth examining how new legislation affects your own personal financial planning.
If you are not sure of the details, consider reaching out to a professional wealth advisor or your accountant to ensure you”™re on the right track and know the best ways to plan for tomorrow, and today.
Lawrence Gore is a senior vice president and senior wealth advisor at Tompkins Wealth Advisors, based in Mount Kisco.
