As your financial planners, we want to keep you informed about changes in the financial landscape that may impact your retirement savings. That’s why we're writing today about the SECURE 2.0 spending bill, which President Biden recently signed into law.

The truth is only about a third of U.S. workers have retirement plans, a serious issue that the SECURE 2.0 Act hopes to address with the following provisions.

6 Changes Taking Effect Immediately

401(k) hardship withdrawals: Employees can take one penalty-free 401(k) distribution per year of up to $1,000, with the option to repay the distribution within three years. These withdrawals can be used for medical expenses, funeral expenses, or tuition and related educational expenses. However, a withdrawal must be due to an "immediate and heavy financial needs",

according to the IRS.

Part-time hours: Part-time workers now only need to work between 500 and 999 hours for two consecutive years to be eligible for their company's 401(k) plans, rather than the previous requirement of three consecutive years.

Saver’s match: Workers at a low- to mid-income level will receive a 50% match up to $2,000 from the government when they save through a workplace retirement plan. This contribution will be deposited into the retirement accounts and cannot be withdrawn without penalty. The match phases out completely at $71,000 for married couples filing jointly, $35,500 for single filers, and $53,250 for heads of households.

RMDs: Previously, people with 401(k) plans were required to take out money from their accounts starting at age 72 to ensure they use it rather than pass it down through their estates. The SECURE Act increases that mandatory age to 73 in 2023 and 75 in 2033.

Employer-based emergency savings account: Unless an employee opts out, employers can automatically opt workers into a savings account, contributing no more than 3% of the employee’s salary, up to $2,500 per year. Contributions to these accounts are made with already-taxed money, and withdrawals are tax-free.

Roth IRA matching for employer plans: Employers now have the ability to offer their employees the choice of receiving vested matching contributions to their Roth accounts. It’s important to note that it may take some time for plan providers to make this option available and for payroll systems to update accordingly.

4 Changes Taking Effect at a Later Date

529 college savings plans: Beginning in 2024, 529 plan assets can be rolled over to a Roth IRA for the beneficiary. The rollover is subject to annual Roth contribution limits and a lifetime limit of $35,000.

Student loan repayments: Beginning in 2024, student loan payments will count as retirement contributions and will be eligible for employer matching.

Automatic enrollment in retirement plans: Starting in 2025, employers will be required to automatically enroll employees in 401(k) and 403(b) plans. Exceptions include small businesses with fewer than ten employees, churches, and governmental plans.

Catch-up contributions: Starting in 2025, those 60 to 63 can direct an extra $10,000 annually towards their 401(k)s (currently, it's $7,500).

It may be worth reviewing your retirement savings strategy in light of these legislative changes. If you’d like help or want to discuss your options further, please don't hesitate to reach out to us.