Retirement reform has been a major focus for lawmakers over the past few years. On December 23, 2022, Congress passed the Securing a Strong Retirement Act of 2022 (Secure 2.0) as part of the Consolidated Appropriations Act of 2023, which President Biden signed into law.
As retirement looms, many Americans dream of a comfortable and financially secure future. Unfortunately, a significant number of us need more savings to retire comfortably – and on time.
Recent surveys reveal that 50% of adults had to pause their retirement savings in 2022, with 41% ceasing contributions to 401(k)s or individual retirement accounts. However, Uncle Sam is taking steps to try and help, and the SECURE Act 2.0 promises to be a game-changer for workers lagging in long-term savings. Can they live up to their promise? And how much will it really help pre-retirees reach their goals?
Here’s a look at some key takeaways of the SECURE Act 2.0 and what it offers retirement savers in 2023 and beyond.
1. Getting Retirement Savers Back on Track
The Consolidated Appropriations Act of 2023 builds on the 2019 SECURE Act and addresses retirement savings coverage. The improvements to the act are designed to benefit Americans who either lack access to a workplace retirement plan or are not contributing to one.
The SECURE 2.0 Act strives to accomplish the following:
- Offering larger 401(k) and IRA catch-up provisions for older workers.
- Delaying mandatory withdrawals or RMDs.
- Allowing for automatic 401(k) transfers between jobs.
- Converting 529 college funds to Roth IRAs.
- Taking penalty-free “emergency distributions” up to $1,000 from retirement accounts, to be repaid within three years.
Overall, the primary purpose of the SECURE 2.0 Act is to help get retirement savers back on track by removing roadblocks that impede building retirement savings. Let’s take a deeper look at some of the new features that are being rolled out in 2023.
2. New Auto-Enrollment Feature
In addition to the provisions mentioned above, the SECURE 2.0 Act is introducing an automatic enrollment feature to the retirement savings scene. This new feature is highly favored by financial services professionals.
According to a recent study, employees automatically enrolled in a plan are more likely to remain enrolled and not opt-out. This leads to increased savings rates for retirement. The automatic enrollment provision of the act also establishes a benchmark for how employees should be enrolled, indirectly impacting existing plans. The result is more people saving more money for retirement and contributing to a healthier retirement savings landscape.
3. The Saver’s Match Feature
One of the provisions of the SECURE 2.0 Act, effective for taxable years after Dec. 31, 2026, replaces the current saver’s credit with the saver’s match. This new match aims to incentivize moderate-income earners to save for retirement and offers several benefits. It removes the tax liability barrier, expands the compensation band coverage, and changes the credit paid in cash as part of a tax refund to a federal matching contribution that must be deposited into a taxpayer’s retirement plan or IRA.
This provision is especially significant as many current employees struggle to contribute to their retirement plans after making student loan payments. The SECURE 2.0 Act enables employers to match student loan payments just as they would match elective deferrals. Allowing employees to receive the match even if they cannot afford to defer. This provision will help to bridge the retirement savings gap for those who have student loans and facilitate greater access to retirement savings incentives.
4. The Impact on Retirement Savers
The SECURE 2.0 Act benefits savers by reducing the likelihood of working past retirement age, increasing education savings, and offering more protection in unexpected events. The act also offers substantial tax credits for employers, making it easier for small businesses to start retirement savings plans.
While the act is continually improving, it’s essential to enhance your financial planning knowledge to maximize its benefits fully. Working with a financial advisor can help you understand the specific provisions of the SECURE 2.0 Act and make informed decisions for your family’s future.
Further Key Provisions Effective in 2023
- Required minimum distribution age raised: The original Secure Act of 2020 raised the age at which participants in employer-sponsored defined contribution plans [including 401(k) plans] must begin taking required minimum distributions from 70½ to 72.
- Penalty for a missed RMD reduced: Secure Act 2.0 decreases the penalty for a failure to take a required minimum distribution from 50% of the underpaid amount to 25%.
- Secure Act 2.0 enables employers to permit plan participants to elect to receive vested employer matching contributions or vested employer non-elective contributions on a Roth (i.e., after-tax) basis, rather than only on a pre-tax basis. This optional provision treats employer contributions as Roth contributions.
- Reduced service: Reduced service required of part-time, long-term employees: The new law reduces the length of service required for part-time, long-term employees to be included in the plan from three to two years. This builds upon the expanded eligibility provided by the original Secure Act.
- Hardship withdrawal self-certification: Employers may now rely on an employee self-certification that they have experienced a hardship for purposes of taking a hardship withdrawal from retirement plan accounts, which is in addition to the existing self-certification that the employee has no other funds available to satisfy the hardship.
- IRS Relief: Secure Act 2.0 expands the IRS Employee Plans Compliance Resolution Systems (EPCRS) program to cover additional types of operational errors, including most inadvertent failures to comply with tax-qualification rules that are eligible for self-correction, assuming IRS practices and procedures were in place to prevent such errors.
- Deferred Annuities: Secure Act 2.0 provides a safe harbor from the minimum distribution rule for employers offering a qualified longevity annuity contract, into which a participant may allocate up to $200,000 from their account to make guaranteed payments at the end of an individual’s life expectancy
How a Financial Advisor Can Help
Navigating the ins and outs of the SECURE 2.0 Act can be complex, but you’re not alone. At APO Financial, our financial advisors can help you understand the Act’s provisions and how the opportunities and implications may impact your unique financial situation.
Additionally, our team can provide information on the best practices for utilizing retirement accounts and offer customized solutions to improve your financial well-being. With our knowledge and experience, you can navigate new laws (like the SECURE 2.0 Act) more effectively and optimize your retirement savings.
Final Thoughts
The SECURE Act 2.0 has the potential to create a more stable retirement for families, but more work is needed to adequately preserve and grow wealth for your golden years.
At APO Financial, our fiduciary advisors help protect against the retirement risks individuals may face as they age. Through bull markets and stock market dips, we’ve helped our clients stay on track through various types of economic conditions, and we’re ready to help you.
If you have further questions about the SECURE 2.0 Act or want to learn more about our retirement planning services, contact us here today.
© 2023 APO Financial. All rights reserved. Disclosure: Communications such as this are not impartial and are provided in connection with advertising and marketing. This material is not suggesting a specific course of action or any action at all.. Prior to making any investment, insurance, financial or legal decision, you should always seek individualized advice from a financial, insurance, legal or tax professional that takes into account all of the particular facts and circumstances of your individual own situation Investment advice is offered through APO Financial Services, LLC (“APO") 10155 Westmoor Drive, Suite 175, Westminster, Colorado 80021-2627, an investment adviser registered with the Securities and Exchange Commission. Registration with the SEC should not be construed to imply that the SEC has approved or endorsed qualifications or the services offered or that its personnel possess a particular level of skill, expertise or training. Important information and disclosures related to APO are available at https://apofinancial1.wpengine.com. Additional information pertaining to APO’s registration status, its business operations, services and fees, and its current written disclosure statement is available on the SEC’s investment adviser public website at https://www.adviserinfo.sec.gov. Information relating to annuities is intended for educational purposes only and should not be construed as comprehensive or all-inclusive. Therefore, it should not be regarded as a complete analysis of the subjects discussed and should not be used to make an investment decision. Annuities can be an important part of an overall portfolio but may not be appropriate for everyone. Before purchasing an annuity, it is important to understand the details of the product. Certain products may not be available in your state. The terms of each indexed annuity varies. It is always important to speak to a financial professional. about an annuity’s features, benefits and fees, and whether an annuity is appropriate for you, based on your financial situation and objectives. Participation rates, cap rates and/or index spreads may be subject to change by the insurance company according to the annuity contract provisions. If the insurance company makes such changes, this could adversely affect the return. Guarantees of an indexed annuity are backed by the claims-paying ability of the underwriting insurance company. The surrender charge period for a product may be longer, and the surrender charges may be higher than other annuity products. Indexed annuities are long-term investments. If the annuity contract is surrendered early, there is the possibility of a surrender charge being imposed and/or the funds may be subject to income taxes. The IRS may also impose a 10% penalty on withdrawals prior to age 59 ½, depending on the circumstances. With indexed annuities, there is the potential to lose money, depending on the product charges and minimum guarantee contract provisions. For additional information on annuities, reference the following websites: The FINRA (www.FINRA.org), the Securities and Exchange Commission (www.SEC.gov), Insured Retirement Institute (www.irionline.org), the National Association of Insurance Commissioners (www.NAIC.org) or your state's insurance department.