SECURE 2.0 for 2024: What clients need to know

Anything that can help make retirement planning easier is a welcome change for investors, especially with fewer pensions, low returns on savings accounts and continued speculations about the future of Social Security.

The SECURE 2.0 Act was designed to help working Americans save for the future and incentivize employers to offer retirement benefits. It’s important for your clients to understand how SECURE 2.0 may affect them, and ways they can maximize their retirement savings strategy to take advantage of new provisions. Here are a few examples.

Automatic 401(k) enrollment

Onboarding new employees presents them with myriad choices that need to be made, forms to fill out, training to complete and more. It can be overwhelming. When presented with optional benefit offerings like participating in a retirement plan, they might be inclined to say, “I’ll deal with that later,” only to put it off for far too long.

Beginning January 1, 2025, employers will be required to automatically enroll new hires in their 401(k) or 403(b) plans, and individuals will have to opt out if they don’t want to participate. This may drastically expand the number of people who will now save for retirement, especially minorities and those with lower incomes.1

The minimum deferrals for auto-enrolled participants will be 3% of their paychecks, up to 10%. The amount will increase by 1% each year until it reaches at least 10%, but not more than 15%. Employees can change the percentage if they wish, or opt out later if they change their minds. Current 401(k) and 403(b) plans are grandfathered in.1

Student loan debt “matches”

Some individuals struggle to find the balance between investing in their future and paying off student loans which can tether them to the past. If you have clients facing the same challenge, encourage them to ask whether their employer can “match” their qualified student loan payments with matching payments to an employer-sponsored retirement account. So, instead of matching separate contributions to a retirement account, the employer can now match the amount a worker pays toward their student loan instead, thanks to SECURE 2.0.1

Easier access to emergency expense withdrawals

Plan participants generally understand that early withdrawals from a retirement plan may come with a tax penalty. But when a family emergency happens, they may feel they have no choice but to dip into their retirement savings when strapped for cash.

Now, workers can withdraw up to $1,000 per year to help cover personal or family emergency expenses without paying the 10% penalty. It does need to be paid back within three years, however, and additional withdrawals can’t be taken within that time frame if they haven’t fully repaid.1

Another provision of SECURE 2.0 is penalty-free withdrawals for survivors of domestic abuse who may need access to their retirement account funds to help them escape an unsafe situation, pay for other housing or a number of other expenses. They can withdraw up to $10,000, or 50% of the participant’s account, whichever is the lesser, and pay it back over three years.1

Part-time employee coverage

Part-time employees haven’t always been able to build their retirement savings through an employer-sponsored plan. That changed when SECURE 2.0 required employers to allow qualified part-time employees to participate in their 401(k) plans. If you have clients who’ve worked at least 500 hours per year for three years in a row, they can enroll in their employer’s plan. The three years of service will reduce to two years beginning in 2025.1

Required Minimum Distribution (RMD) Updates

Once retirement finally rolls around, plan participants need to take RMDs from their tax-deferred retirement account, or face penalties. RMDs from retirement plans had to be taken beginning at age 72, but that age was increased to 73 in 2023, and will jump to age 75 in 2033. Before SECURE 2.0, RMDs from Roth 410(k)s included in an employer plan also had to begin at age 72. Now, RMDs don’t need to be taken from Roth 401(k) accounts prior to the death of the owner.1 

While new legislation can be confusing, the SECURE 2.0 Act ushers in many welcome changes that will hopefully help millions of workers save more for retirement. Talk with your clients about whether they’re taking full advantage of any retirement benefits being offered by their employer, and factor them into their overall retirement strategy.

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