Where business owners and leaders can benefit

The Secure Act 2.0 is now law. And chances are, this $1.7 trillion dollar legislation will mean major changes to your retirement plan- in a good way!

We’ve summarized some key provisions of the legislation that may affect you as you plan ahead and save for retirement.  You’ll also see the changes that may make a positive impact on your employees’ retirement readiness.

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General retirement savings and withdrawals

Required Minimum Distributions (RMDs)

The age for RMDs has increased to 73 (up from 72), and it’s scheduled to rise again to 75 in 2033. Additionally, penalties for not taking an RMD have decreased. You’ll now only be subject to a 25% penalty (down from 50%) for not making a mandatory withdrawal.

Higher catch-up contributions

Starting in 2024, catch-up contributions to IRAs and qualified plans will be adjusted to cost-of-living increases. This could mean an annual rise in catch-up contribution limits for those over age 50 each year to pace with inflation.

Beginning in 2025, those who are 60 – 63 years of age can make catch-up contributions as high as $10,000 to their workplace’s retirement plan. These contributions will also adjust according to inflation. Individuals who qualify to make catch-up contributions and earn $145,000 or more (adjusted for inflation each year), must make these contributions to a Roth account using after-tax dollars.

Retirement “lost and found”

Beginning in 2025, participants and beneficiaries alike will be able to use an internet database to search for contact information for retirement plan administrators so that they may claim retirement funds they may have left behind at former employers. Plans will have to submit their information to the Department of Labor for the database’s records.

Education savings

529 plan rollovers

Beginning in 2024, if you have unused funds in 529 accounts that have been open for at least 15 years you can roll those funds into a Roth IRA for the 529 account’s beneficiary. However, there is a lifetime rollover limit of $35,000.

Employees

Emergency withdrawal allowances

Employees are now able to make an early one-time withdrawal up to $1,000 each year from their retirement account with no penalty. However, the withdrawal must be made for emergency expenses.

Auto-portability of retirement accounts

Automatic transfers of an employee’s retirement account can now be made to a new employer’s plan provided that the amount is no more than $5,000.

Business owners

Automatic enrollment

Retirement plans created after December 29, 2022 will be subject to new automatic enrollment rules. That’s because, starting in 2025, employers will be required to auto enroll their workers into their retirement plan at a minimum of 3% of salary. However, new businesses (in operation for under 3 years), and employers with 10 or fewer employees are exempt from this change.

Automatic escalation

Starting in 2025, retirement plans formed after December 29, 2022, will also be subject to new escalation rules. Contribution percentages will automatically rise by 1% at the start of each new plan year following an employee’s full year of service. This increase must continue until the contribution reaches a minimum of 10%. New businesses (in operation for under 3 years), and employers with 10 or fewer employees will again be exempt.

The “Starter K” plan

The Secure Act 2.0 offers starter 401(k) and 403(b) plans to employers with no retirement plan in place. Salary deferral limits of these starter plans match those of IRAs, but additional catch-up contributions can be made by participants age 50 or older.

Higher tax credit for new plans

Presently, businesses with under 100 employees may qualify for a start-up tax credit of up to 50% of their retirement plan’s administrative expenses for 3 years with a capped limit of $5,000. The Secure Act 2.0 boosts this credit to 100% of eligible start-up expenses for businesses with no more than 50 employees. Additionally, an add-on credit as high as $1,000 per employee may apply to qualifying employer contributions in organizations with no more than 50 employees.

How The Advisory Group can help you further

At The Advisory Group, it’s a privilege to help our clients plan, prepare, and invest for retirement. We take pride in helping them navigate the decisions that will benefit them and their employees the most.

With the passing of the Secure Act 2.0 several new retirement options opened up. And as a team, we can explore the ones most relevant to your unique situation.

Please don’t hesitate to reach out if you need help in strategizing for retirement under these new conditions. Feel free to set up a complimentary consultation, or call us directly at (415) 977-1200.