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6 Ways the SECURE 2.0 Act Could Impact Your Retirement Planning

By Cathie Ericson

  • PUBLISHED January 02
  • |
  • 7 MINUTE READ

Is your treasure chest substantial enough to support the golden years of your dreams? There may be some work to do, given that the latest National Retirement Risk Index reveals that about half of households won't have enough money to maintain their living standards in retirement.1

Legislation called the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act aims to help combat the savings gap by ushering in significant retirement plan reforms. Here is a short summary of six updates and provisions that might affect you.

1. You Can Now Contribute More to Your 401(k) and 403(b) Accounts

These accounts, offered by many workplaces, are a way to save for your future with significant tax advantages as your money grows over time with tax-deferred contributions. While there's a limit to how much you can deposit each year, the amount increased to $22,500 for 2023, and participants age 50 and over can add a catch-up contribution of an additional $7,500.2 Starting in 2025, individuals ages 60 to 63 can add up to $10,000, or 150% of the standard catch-up amount, whichever is higher.3

Socking away as much as you can in a retirement account as early as you can allows your money to grow over time with the benefit of compound interest, which is interest paid on top of interest. Many workplaces also match what you contribute, up to a certain percentage, so it's wise to deposit at least up to that free match.

2. Your Employer Can Give You 401(k) Matching Contributions Even If You're Not Contributing Because of Student Debt

Those matching contributions we just mentioned? It's a shame to think you're missing out on that free money merely because you're tackling student loan repayments, which for many borrowers have taken precedence over contributing to a retirement plan. With a new provision in the SECURE 2.0 Act, beginning in 2024, employers can opt to match your student loan payments with contributions to your 401(k).4 Make sure to ask your employer if they will be participating in this option, and share the benefits if they're unaware.

3. You May Be Able to Participate in 401(k) and 403(b) Plans Even If You're a Part-time Employee

The SECURE 2.0 Act further expands saving options to part-time employees, with those who work between 500 and 999 hours for two consecutive years eligible for their company's plan.5 But there are other ways to save. Look into a high yield savings account, money market account or certificate of deposit for a flexible savings vehicle that can help your money grow. It's also wise to keep an emergency fund where your money is easy to access, in addition to a 401(k) plan.

4. You Might Be Automatically Enrolled in Your Company's 401(k) and 403(b) Plans

Automatically saving in a 401(k) plan can have a huge effect on your finances. In fact, a recent Vanguard study found that millennials are faring better than both Gen X and Baby Boomers in saving adequately to replace their income during retirement. The study pinpoints automatic enrollment in 401(k) plans—something more common among younger generations—as the secret.6

However, today not all plans are required to automatically enroll you, which will change in 2025, thanks to the SECURE 2.0 Act. With this provision, rather than waiting for employees to opt in, employers must automatically enroll them. (The caveat is that this requirement only kicks in for companies that start new plans. Otherwise, you'll need to enroll yourself.)7

While you can opt out even if you're automatically enrolled, you may want to think through the benefits of staying in the plan. The earlier you start saving, the longer your money has to grow and reap the benefits of compound interest along the way. So don't wait for your employer to enroll you: Take a minute to ensure you're enrolled in your company's 401(k) plan today.

5. 529 College Savings Plans Are Becoming More Flexible

Many families start 529 plans as a way to save for college for a future scholar. But some might worry they will eventually have to pay a penalty if the funds aren't used for qualified college expenses. With SECURE 2.0, beginning in 2024, families can instead roll over a lifetime limit of $35,000 in unused funds into a Roth IRA designated for the 529's beneficiary. The 529 plan must have been established for at least 15 years, and deposits must have been in the plan for at least five years.8

6. You Might Be Able to Make a Penalty-free Hardship Withdrawal

Some people may hesitate to contribute to a retirement plan because they're concerned they might need the money before, well, retirement. Beginning in 2024, the SECURE 2.0 Act offers more leniency for hardship withdrawals for certain situations, such as weather-related disasters, domestic abuse and other emergency circumstances.9

Keep in mind that even if the withdrawal is penalty-free, you will still lose out on the growth and compound interest your money might have otherwise made.

Consider tapping into other savings vehicles, such as high yield savings accounts, money market accounts or certificate of deposits (CDs), as a way to save for a rainy day—and earn interest while you're at it.

More Savings, More Security

While the SECURE 2.0 Act offers a bevy of new benefits, you can't take advantage unless you start saving. One step to securing your financial future is to enroll in your 401(k) for the long run and set up automated savings into other vehicles—like money market accounts, CDs and high yield savings accounts—to help boost savings for short- and medium-term goals.

 

READ MORE: How Much Should You Save Each Month for Retirement?

 

Cathie Ericson is an Oregon-based freelance writer who covers personal finance, real estate and education, among other topics. Her work has appeared in a wide range of publications and websites, including U.S. News & World Report, MSN, Business Insider, Yahoo Finance, MarketWatch, Fast Company, Realtor.com and more.

 

Sources/references

1. Yin, Yimeng et al.The National Retirement Risk Index: Version 2.0. Center for Retirement Research at Boston College. May 9, 2023.

2. One-Participant 401(k) Plans. IRS. August 29, 2023.

3. Villanova, Patrick. You Can Make a $10,000 Bonus Contribution to Your 401(k) If You Fit Into This Narrow Age Window. Yahoo Finance. November 13, 2023.

4. Ermey, Ryan. Pay student loans or invest in your 401(k)? You may soon be able to do both at once. CNBC. July 7, 2023.

5. Rezvani, Arezou. The federal spending bill will make it easier to save for retirement. Here's how. NPR. December 30, 2022.

6. Tan, Fu et al. The Vanguard Retirement Outlook: A national perspective on retirement readiness. Vanguard. October 2023.

7. Ulrich, Ronald. SECURE 2.0: A Closer Look at Auto Enrollment & Catch-up Contributions. ADP. August 31, 2023.

8. Pon, Lawrence. The new 529 rollover to Roth IRA. Journal of Accountancy. July 26, 2023.

9. Kearney, Brian J. et al. Taking a closer look at SECURE 2.0's penalty-free distribution provisions. Mercer. March 13, 2023.