In 2019, the SECURE Act was signed into law. SECURE stands for Setting Every Community Up for Retirement Enhancement and aimed to improve the ability for Americans to save money for retirement. The Federal Reserve found in their Report on the Economic Well-Being of U.S. Households in 2019 that the median retirement savings among all adults in the United States were only $65,000. In 2022, the SECURE Act 2.0 was passed to build upon the retirement savings abilities for Americans. Continue reading to learn about the benefits of the SECURE Act 2.0.
Lower Cost For Employers To Start Retirement Plans
If you are a business owner and want to offer your employees a retirement plan, the SECURE Act 2.0 now makes it cheaper to start a retirement plan for your business. There are several ways this is done:
- A new small business tax credit for employers who contribute to their employee’s plans can receive up to $1,000 per participating employee.
- The tax credit for small businesses implementing a new 401(k) plan increased for the first 3 years from 50% to 100% with a cap of $5,000.
Giving More Opportunities To Participants
The SECURE Act 2.0 gives employer-sponsored plan participants more opportunities to contribute and utilize their funds.
- Starting in 2025, employees will be automatically enrolled into the employer’s 401(k) or 403(b) plans with a starting contribution rate of 3.
- Starting in 2024, non-highly compensated employees will be able to contribute to an emergency savings account that is Roth account eligible as long as its a part of a define contribution retirement plan. The contribution limit will be $2,500 per year, and the first four withdrawals are penalty- and tax-free.
- In 2024, employers will be allowed to match student loan payments their employees are making with contributions to retirement accounts.
- Also starting in 2024, participants can withdraw up to $1,000 from their retirement account once a year for emergency personal or family expenses without penalty.
- Catch-up contributions will increase each year based on the Internal Revenue Service’s cost of living adjustment starting in 2024.
Better Circumstances In Retirement
Once you’re utilizing your retirement funds, the SECURE Act 2.0 has updated certain circumstances on using your funds in a financially beneficial way.
- The SECURE Act 2.0 have changed the age that retirees need to start taking required minimum distributions (RMDs). Starting in 2023, the minimum age has increased to 73 years old. In 2025, the age will increase to 75 years old.
- There is also a reduction in the penalty for not taking an RMD. The penalty for not taking an RMD dropped from 50% to 25% in 2023. If the failure is fixed in a timely manner, the penalty dropped from 25% to 10%.
- Starting in 2023, people 70 & ½ years and older can take advantage of a one-time qualified charitable distribution of up to $50,000 to a charitable remainder unit trust, a charitable remainder annuity trust, or a charitable gift annuity.
Make sure you take advantage of this new legislation by having an advisor from Total Clarity Wealth on your side. Our advisors are up to date on all the ways you can benefit from the new SECURE Act 2.0. If you need assistance planning your retirement, schedule a consultation today.
This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.