Congress passed a $1.7 trillion spending bill that includes important changes to retirement savings plans, known as the Secure Act 2.0. NBC4 talked to financial advisor Brian Levy with BML Wealth Management about what you need to know.
Employers will be required to automatically enroll employees in a 401(k) plan. How will that work?
Levy: Starting in 2024, most employers will be required to automatically enroll eligible workers in a 401(k) plan, with contributions starting at 3% of their salary, up to 10%. Employees always have the option to opt out or select a different contribution amount.
Under the new bill, part-time workers will have better access to retirement plans through their employers. Anyone working at least 500 hours per year for two years must be allowed to participate in an employer-sponsored retirement account.
Saving money for retirement can be difficult for those with a lot of student loan debt. How does the bill address the student loan crisis?
Levy: Starting in 2024, businesses would be able to make contributions to an employee’s retirement account when the employee makes payments on their student loans. For example, if you made a $200 payment toward your student loan, your employer would match that payment by putting $200 into your employer-sponsored 401(k).
Does 2.0 include changes to “catch up contributions?”
Levy: Yes. If you are older than age 50 and feel like you haven’t been saving enough, you can already make what’s called catch-up contributions to increase your savings rate. Secure Act 2.0 would add another catch-up contribution for people aged 62 to 64, allowing them to add an additional $10,000 per year starting in 2025. The new limit would be adjusted for inflation in the future. This can be powerful for those who got a late start saving for retirement or for people who have children later in life and need to dial back their savings.
What is changing about the Required Minimum Distributions for retirees?
Levy: You cannot keep retirement funds in your 401(k)s and IRAs indefinitely. The first Secure Act raised the age for taking mandatory retirement withdrawals to age 72. New regulations would increase the starting age for Required Minimum Distributions, or RMDs, to 73 beginning in 2023 and 75 in 2033. Pushing the RMD age back allows your IRAs and 401(k)s to grow without being depleted by distributions and taxes.
What if there’s a family emergency and you need to withdraw from your retirement account, is that allowed?
Levy: Using your retirement dollars before age 59 ½ currently results in a 10% early-withdrawal penalty. But the new bill creates a penalty-free withdrawal of up to $1,000. The funds must be used for an emergency, such as a major medical bill, and can only be withdrawn once per year.
With inflation so high and budgets stretched thin, these changes are intended to help families save more money for the future and be better prepared if unexpected expenses come up.