The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was recently passed by Congress as a follow-up to the original SECURE Act that was passed in 2019. The new legislation includes dozens of provisions designed to make it easier for Americans to save for retirement and better prepare for their golden years. However, retirees should pay close attention because it also includes changes that could significantly impact their retirement income and financial planning strategies.
One of the main objectives of the SECURE Act 2.0 is to encourage workers to save more for retirement by expanding access to retirement savings plans. They hope to achieve this through a variety of methods, including changing catch-up contributions. Currently, individuals over age 50 are eligible to make catch-up contributions to their retirement accounts, but the SECURE Act 2.0 would expand this eligibility to individuals over age 60. This change would allow older individuals to save more aggressively for their retirement and make up for any missed opportunities earlier in life.
Another provision that received attention because of its outside-the-box approach is one that benefits those younger Americans still paying off student loans. For years, workers have had to forego saving for retirement to pay down student loan debts. With this new bill, people will now be able to receive the company 401(k) match without having to contribute their own money as long as they’re making payments on student loans. This could allow people to begin growing their retirement savings earlier, which will pay big dividends later in life.
While the SECURE Act 2.0 is intended to help Americans save more for retirement, it also includes changes that could impact retirees’ financial planning strategies. One that’s getting most of the headlines is the change to the required minimum distribution (RMD) age. Under previous law, retirees must start taking withdrawals from their retirement accounts at age 72. However, the SECURE Act 2.0 will push the age back once again to age 73 this year and eventually to 75, giving retirees more time to accumulate wealth in their retirement accounts.
Another change that will both help people save and change planning strategies is a potentially significant one for retirees. It will now be possible to transfer funds from a 529 plan to a Roth IRA, which could change the way you look at the 529 plan. Even though it will come with restrictions, the ability to move money into a Roth IRA and still take advantage of the tax savings without worrying about saving more than your child or grandchild will need for education.
As you can see, the SECURE Act 2.0 includes several provisions that could significantly impact retirees’ financial planning strategies. It is important for retirees to pay attention to these changes and determine whether they may impact retirement income and savings plans. By staying informed and working with a trusted financial advisor, retirees can make informed decisions about their finances and ensure they are prepared for a secure and comfortable retirement.