SECURE Act 2.0 and Your Retirement

Just when you think Congress can’t do anything right, they go ahead and pass the SECURE Act 2.0.  There are actually a lot of “right things” in the latest version of this legislation, which was signed into law a few months ago. One this Faith and Finance, we’ll talk about how it affects your retirement, whether you’re in it, or still saving for it. 

• Okay, a little background first. Congress loves acronyms, so understand that SECURE stands for Setting Every Community Up for Retirement Enhancement. The first SECURE Act was passed in 2019 and made several improvements to make retirement saving easier.
• SECURE ACT 2.0
• The latest version, the SECURE Act 2.0 as it’s come to be known, builds on that, starting with changes to Required Minimum Distributions that you’ll have to take in retirement.
• The age for taking your RMD has been increased from 73 to 75 if you turn 72 after January first of 2023 and that takes effect this year. That means you’ll have an extra two years to build your retirement savings before making a mandatory withdrawal and paying taxes on that money. That’s a definite improvement.
• A few more RMD improvements. Starting in 2024, If you have a Roth account with your 401(k) or 403(b) plan, you’ll no longer have to take RMDs from that account during your lifetime.
• Also, if you’re late taking an RMD or you miss one, the penalty has been reduced from 50% of the RMD to 25% starting this year. And if you correct the mistake within what’s called a “timely manner,” the penalty is further reduced to 10%.
• The new legislation also makes things easier if you’re struggling to pay off student loans and save for retirement. Employers with 401(k) plans, 403(b) plans, governmental 457(b) plans, and SIMPLE IRAs now have the option to match contributions on qualified student loan payments to your retirement account. That means your loan payments will be treated as elective deferrals just like your retirement contributions.
• Now, you know how we’re always telling you to have an emergency fund in place with 3 to 6 months living expenses? The SECURE Act 2.0 will now give you a place to store those funds where they can make greater gains than in a savings account.
• Employers now have the option of adding a Roth “emergency fund” to their plans for most employees. Participants will be able to make limited contributions to those special Roth accounts and have penalty-free access to those funds when needed. And bonus— those contributions will be eligible for employer matches. That, as they say, is a game-changer.
• If you’ve been late making contributions to your retirement plan, there’s also an increase in catch-up contributions. Starting in January of next year, if you’re between ages 60 and 63, you’ll be able to make larger contributions to your employer plan.
• The new limit will be $10,000 or 50% of the regular catch-up amount, whichever is greater, and that will be indexed to inflation. The IRA catch-up amount stays at $1,000, but that will also be indexed to inflation.
• Starting on January 1, 2025, individuals aged 60 to 63 will be able to make larger catch-up contributions to employer-based retirement plans. The limit for people in that age range will be the greater of $10,000 or 50% more than the regular catch-up amount, indexed to inflation. Also, the current IRA catch-up contribution amount of $1,000 will be indexed for inflation starting in 2024.
• Now, if you’re starting to think that Congress did all this out of the goodness of their hearts, keep in mind that many of these new provisions are aimed at increasing Roth contributions. Since those contributions are made with “after-tax” money, it means that Uncle Sam gets his cut now, instead of having to wait.
• An example in the new legislation is that Roth accounts in company 401k and 403b plans are now eligible for matching employer contributions. But to be fair, increasing Roth contributions also works to the benefit of younger investors who are likely to be in a lower tax bracket now, rather than later in life.
• Proverbs 21:20 tells us, “Precious treasure and oil are in a wise man's dwelling, but a foolish man devours it.” and it would certainly be wise to take advantage of all these changes in the rules for retirement savings.

On this program, Rob also answers listener questions: 

• When does it make sense to take money out of retirement savings to pay off your home?
• What is the best way to save for retirement when you're getting a late start on investing?

Remember, you can call in to ask your questions most days at (800) 525-7000. Also, visit our website at FaithFi.com where you can join the FaithFi Community, and give as we expand our outreach. 

Remember, you can call in to ask your questions most days at (800) 525-7000. Faith & Finance is also available on the Moody Radio Network and American Family Radio. Visit our website at FaithFi.com where you can join the FaithFi Community and give as we expand our outreach.