Retirement Plan Services: Secure 2.0
We keep hearing about Secure 2.0 (Setting Every Community Up for Retirement Enhancement Act 2019). It brings many changes as well as many questions. It is intended to improve retirement outcomes. Congress and the IRS are still working on the specifics and how plans will incorporate these features. While there are many features, we will focus on a few that are important to our plan participants and sponsors.
1. CATCH UP CONTRIBUTIONS
Beginning in 2024, for participants that earned more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth source (in after-tax dollars). Participants who earn $145,000 or less, will be exempt from the Roth requirement.
Beginning January 1, 2025, participants ages 60 – 63 years of age will be able to make catch up contributions up to $10,000 to their qualified workplace retirement plan. (The catch-up limit for participants 50 and older for 2023 is $7,500)
2. AGE INCREASES FOR RMD’s
Beginning January 1, 2023 the age requirement for taking your RMD is age 73. The age increases to 75 in 2033. If you turned 72 in 2022 or earlier, you need to continue taking RMDs as scheduled. If you will be turning 72 in 2023 and have already scheduled your withdrawal, you may wish to update your schedule for withdrawals.
- Starting in 2023, the penalty for not taking your RMD will decrease from 50% to 25% of the RMD amount not taken.
- Beginning in 2024, Roth accounts in qualified employer plans will be exempt from the RMD requirements.
3. AUTOMATIC ENROLLMENT
Beginning in 2025, new 401(k) and 403(b) plans will require eligible employees to be automatically enrolled at a rate of at least 3%.
4. STUDENT LOAN DEBT
Beginning in 2024, employers will have an option to “match” employee student loan payments with matching payments to a retirement account. This will be an incentive for participants to save while paying off student loan debt.
5. EMERGENCY SAVINGS
Beginning in 2024, plans will have the option to add an emergency savings account that is a designated Roth account. This will only be permitted for non-highly compensated employees. Contributions will be limited to $2,500 annually (or lower if the employer determines). Participants will be permitted to take the first 4 withdrawals in a year, tax and penalty free. This is intended to encourage more saving since participants will be able to access their funds in the event of an emergency without being penalized.
These enhancements will help participants to more easily prepare for a comfortable retirement. Should you have any questions you may reach out to your Retirement Plan Advisor listed below.
John McMahon
Retirement Plan Advisor
First Merchants Private Wealth Advisors products are not FDIC insured, are not deposits of First Merchants Bank, are not guaranteed by any federal government agency, and may lose value. Investments are not guaranteed by First Merchants Bank and are not insured by any government agency. This material has been prepared solely for informational purposes. First Merchants shall not be liable for any errors or delays in the data or information, or for any actions taken in reliance thereon. Any views or opinions in this message are solely those of the author and do not necessarily represent those of the organization.