The SECURE 2.0 Act offers some new ways to save for retirement and access your money in emergencies. Learn how this can help you increase your savings in your 401(k) account.
New Ways to Save
For many young workers just starting out, it can be difficult to find money to save for your retirement future. But the SECURE 2.0 Act includes some provisions that can help. For example, if your student loan payments are preventing you from saving for retirement, you can still start your retirement fund – without putting a dime in your 401(k) account. Beginning in 2024, an employer can contribute to a 401(k) fund for you to match your student loan payments. “This will allow those with large student loans to participate in the employer’s retirement plan without being left behind for years while they continue to pay off their student loans,” says Jeb Kiger, director of financial planning and education at Edelman Financial Engines. “Even waiting a few years to contribute can make it incredibly difficult to catch up on the necessary savings and potential investment growth needed for a secure retirement.” And if a lack of an emergency fund is preventing you from saving for retirement, an employer can offer a separate Roth account that acts as an emergency fund for you. You can contribute up to $2,500 per year (with potential matching by the employer) and the first four withdrawals each year will be penalty-free.
Facilitating Access for Part-Time Employees
The SECURE 2.0 Act shortens the period that part-time employees need to contribute to their 401(k) account to two years with a minimum of 500 hours of service. (Currently, part-time employees need three years before they can start saving.)
Catch-Up Contributions for Those Over 50
People over age 50 can contribute an additional $6,500 on top of the current 401(k) contribution limit of $20,500. People over age 60 will be able to save even larger amounts. “Beginning in 2025, when a person reaches that age, they will be able to contribute more through catch-up contributions, by $10,000 or 150 percent of the regular additional contribution,” says Kiger. “This allows late savers to catch up on savings more aggressively than in the past.” (You should keep in mind that if you earn more than $145,000, your catch-up contributions will be placed in a Roth 401(k) instead – which means you won’t see any tax savings upfront, but you won’t pay any taxes on the earnings when withdrawn.)
New Ways to Access Retirement Savings in Emergencies
Even if your employer does not offer a Roth emergency fund option, there are other ways that the SECURE 2.0 Act has made it easier to access funds when you need them – without the penalties and taxes typically associated with a 401(k) loan. Under the new law, an employer can allow you to withdraw $1,000 as “rainy day” money to help cover unexpected expenses. Certain individuals may also have opportunities to take withdrawals of up to $22,000 without penalties. “The SECURE Act includes additional early withdrawal options to avoid penalties for private sector firefighters, correction officers, individuals with chronic illnesses, victims of domestic violence, people in disaster areas, and public safety workers,” says Kiger. But Kiger recommends ensuring that it is a true emergency before tapping into your retirement savings. “Withdrawing money from a retirement account is a ‘break glass in case of emergency’ situation and should be used cautiously. Taking early distributions can hinder your ability to accumulate what you need for retirement in the future.”
May
You are automatically enrolled in a 401(k) account
Starting in 2024, the SECURE 2.0 Act requires new workplace savings plans to automatically enroll their employees at a rate starting from 3 percent (up to 10 percent). Employees will need to opt out if they do not wish to save for retirement.
Ability to wait to start withdrawing savings if you are retired
You previously had to start withdrawing money from your 401(k) account when you reached age 70 and a half, but you can now wait until you turn 73 to start tapping into your retirement funds – and within 10 years, that age will rise to 75. (And if you have a Roth IRA account, there are no required distributions.)
You will get help finding your old 401(k) accounts
If you have changed jobs often, you likely know that rolling over your 401(k) account to a new employer’s plan (or a separate IRA) can be a complicated process – this is the main reason many workers choose to cash out small 401(k) balances instead of going through the process. But the SECURE 2.0 Act creates a new “lost and found” database you can use to locate any retirement accounts you may have left behind – and requires service providers to facilitate their transfer and consolidation.
Source: https://www.realsimple.com/what-you-need-to-know-about-the-new-401k-rules-7093121
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