Episode #37- The SECURE Act 2.0- New Changes to Retirement Savings

Wealth Decisions Podcast Transcript for Episode #37: The SECURE Act 2.0- New Changes to Retirement Savings

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Welcome to The Wealth Decisions Podcast, where each week I take 15 minutes or less to discuss crucial wealth decisions and mindset hacks to help you live a richer life.

I'm your host, Brian Muller, and I've been in the financial services industry for over 25 years, and I'm also a certified life and health coach.

And I have a passion for helping people make better decisions around their money and their life.

So for the sake of time, let's dive right into it.

In today's episode, we're going to be talking about some of the latest developments in personal finance and retirement planning.

And we're going to dive into the topic that has been making waves in the world of retirement savings.

It's the Secure Act 2.0.

This legislation was passed in late 2022, and it brings really a lot of significant changes to how Americans can save for retirement.

Whether you're just starting your career or nearing retirement age, these changes could have a huge impact on your financial future.

So let's break down what's new and what it means to you.

Let's just start with just a little bit of background.

The SECURE Act 2.0 is a follow-up to the original SECURE Act.

SECURE stands for Setting Every Community Up for Retirement Enhancement.

And this was passed originally in 2019.

But this new legislation aims to address kind of some of the ongoing retirement savings crisis in America by making, you know, it easier for people to save and by providing more options for how they can use their retirement funds.

So let's dive into some of the key changes.

Number one, the RMD age is going to increase.

And RMD stands for Required Minimum Distributions.

Previously, you had to start taking distributions from your traditional IRA or your 401k accounts at age 72.

It used to be 70 and a half and they increased that to age 72.

But under the new law, the age is going to gradually increase.

If you turn 72 in 2023 or later, you can wait until age 73 to start taking required minimum distributions.

If you turn 74 in 2033 or later, you can wait until age 75.

These changes give your retirement savings more time to grow tax-deferred without being required to take those distributions.

Number two is catch-up contributions.

The Secure Act 2.0 increases the catch-up contribution limits for older workers.

Starting in 2025, if you re between the ages of 60 and 63, you ll be able to contribute an extra 10,000 annually to your 401k or 403b plan, or an extra 5,000 to a simple IRA.

This is on top of the standard catch-up contributions already allowed for those age 50 and older.

Number three, as part of the Secure Act 2.0, is auto enrollment in 401k plans.

So this encourages more people to save for retirement.

The Act requires that most new 401k and 403b plans to automatically enroll eligible employees, starting at a contribution rate of at least 3% of your salary.

This requirement takes effect for plans established after December 29th of 2022.

So for those of you that are just starting to save, you'll automatically be enrolled to start having 3% of your salary taken out for your financial future.

Number four is student loan debt and retirement savings.

This is a really, I think, groundbreaking move that the act allows employers to match employee student loan payments with retirement account contributions.

This means you can be building your retirement savings even while paying off your student loans.

So a pretty good deal for individuals that do have some student loan debt, but would like to start saving for retirement and not just be burdened by paying off that student loan debt.

Number five is part-time worker eligibility.

So the act reduces the service requirement for part-time workers to become eligible for 401k plans.

Now employees who work at least 500 hours per year for two consecutive years, that's down from three, must be allowed to participate in their employer's 401k plan.

Now this doesn't apply to everyone, not everybody has a part-time job, but for those individuals that do have a part-time job, they'll be eligible sooner to contribute to their 401k plan.

Number six, this one's really cool.

It's an emergency savings account.

This part of the act allows employers to offer emergency savings accounts linked to individual account plans.

And employees can contribute up to 2,500 annually to these accounts.

And the first four withdrawals each year are tax and penalty free.

So a great way to get some money in some type of emergency account with some tax benefits.

Number seven, I think is a really big one.

529 plans can be rolled over to Roth IRAs starting in 2024.

It allows for penalty free rollovers from 529 education savings plans to Roth IRAs.

And there is some certain conditions and limits that need to be met.

But this provides just more flexibility for any unused 529 plans.

Sometimes an individual might get some type of scholarship or get some type of help financially from a grandparent and they don't need to use their 529 plan.

So this allows that individual to roll that 529 plan into a Roth IRA to get started on their financial future.

And number 8 is the savers match.

This part of the act replaces the current savers credit with a federal matching contribution that will be deposited directly into a taxpayer's IRA or retirement plan.

And this change takes effect in 2027.

But just another great retirement planning and savings tool to help Americans save for retirement.

So what do all these changes mean for you?

Now, it depends on your individual situation, but here's just some key takeaways.

If you're younger, the auto enrollment provision could jumpstart your retirement savings earlier in your career.

Now, if you're struggling with student loan debt, you might be able to start building retirement savings while paying off your loans, instead of waiting and focusing just on debt repayment.

Number three, if you're nearing retirement age, you're going to have more flexibility when you need to start taking distributions from your retirement accounts with the higher RMD ages.

And if you're still working in your 60s, you'll have the opportunity to make larger catch up contributions to boost your savings in that kind of final stretch before retirement.

Now, while all these changers offer new opportunities, it's always a good idea to consult with a financial advisor to understand how they might apply to your specific situation and how it could impact your ability to retire earlier than you'd like to.

Have a financial advisor run some of these new changes through your financial plan to show the impact on what it would look like for your retirement.

So let's wrap up today's episode with just a recap of the main points of the Secure Act 2.0.

It increases the age for required minimum distributions from age 72 currently to eventually age 75.

It boosts catch up contribution limits for older workers and allows someone that's age 60 to 63 to contribute 10,000 more annually to their 401k or 403b and 5,000 more to a simple IRA.

That's on top of the catch up provisions if you're age 50 or older.

The Secure Act 2.0 requires auto enrollment and new 401k plans to make sure that people do start saving for retirement.

The Secure Act 2.0 allows for student loan payment matching which can help anyone with student debt continue to pay off that debt while saving for retirement.

And finally, it provides more options for emergency savings and unused 529 plans.

So some really great new changes with the Secure Act 2.0.

Not all of them will apply to you, but some significant shifts to help more Americans build financial security for their future.

So that's it for today's episode looking at the Secure Act 2.0 and all the positive changes to help you build a better future and retire on your terms.

And if you like this episode, please rate the episode, make some comments and hit the notification bell to get updated on future Wealth Decision podcasts.

And please, if you could, share it with a family member or a friend.

My goal with the Wealth Decisions Podcast is to reach over 100,000 people by the end of the year in the Twin Cities and beyond, so that people can make better wealth decisions to live a richer life.

If you like to schedule a Discovery Call with me, you can go to my website at momentouswealthadvisors.com and I'll spend some time to get to know you a little bit and find out if I might be able to steer you in the right direction or help you with your financial future.

And once again, thanks for listening, and have a great weekend.

Listen to this episode on Apple Podcasts or Spotify


-Brian D. Muller, AAMS® Founder, Wealth Advisor

Momentous Wealth Advisors in a fee-only fiduciary advisory firm

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