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11 Retirement Changes

Greg Spears

JUST IN TIME FOR Christmas, a sweeping new retirement law has passed both houses of Congress, and should be signed into law this weekend. Dubbed the SECURE Act 2.0, it makes dozens of significant changes to the employer-based savings systems that millions of workers depend on for retirement.

Under the new law, some workers will be able to save far larger catch-up contributions during the home stretch of their working years. Meanwhile, retirees can delay taking required minimum distributions until age 73 starting in 2023. Younger workers with college loans may get an employer match for paying those debts. And people facing a financial emergency will find it easier to take money from retirement savings.

Many of the provisions won’t take effect for a year or two—and sometimes even longer. With that caveat, here are 11 changes that could affect you sooner or later.

1. Delayed RMDs. Here’s one provision that has an immediate effect. The new law delays the first required minimum distribution (RMD) from tax-advantaged retirement savings accounts from age 72 to 73 starting next year. In subsequent years, the RMD age will be raised even further, reaching 75 in 2033.

But postponing withdrawals might be a Pyrrhic victory—one that comes at great cost. Income tax rates are low now and scheduled to rise in 2026. Some retirees might owe less by taking smaller, more frequent withdrawals rather than bigger slices later at steeper tax rates.

2. Higher catch-ups. Starting in 2025, the maximum catch-up contribution limit is raised from $6,500 in 2022 to at least $10,000 a year—but only for workers ages 60, 61, 62 and 63. The law stipulates that this “super catch-up” will be a moving target that’s at least 50% more than the regular catch-up contribution amount. In the meantime, the regular catch-up is getting a $1,000 inflation increase to $7,500 in 2023, so the super catch-up would then pencil out at $11,250.

If workers made maximum contributions plus super catch-ups, they could pack $133,000 into their retirement plan at work in just four years. But wait, there’s more. For the first time, IRA catch-ups will be indexed to inflation starting in 2024. That catch-up has been stuck at $1,000 a year since 2015.

3. Roth catch-ups. In a big switch, catch-up contributions to employer retirement plans—but apparently not to IRAs—would have to be made with Roth after-tax dollars, except for workers who make less than $145,000. This is the biggest tax increase in the new law, and it helps pay for some of the other tax breaks it bestows.

Every retirement plan has a cadre of super-savers who try to contribute the maximum each year. These new catch-up provisions will make it more expensive to join this club. To hit the max, workers ages 60 through 63 would need to contribute well over $30,000 a year—without the benefit of a tax deduction on the catch-up portion.

4. No RMDs on Roth savings. Starting in 2024, Roth money in a 401(k) would not be subject to RMDs, as it is today. Roth IRAs were already exempt from RMDs. That’s led to a big exodus of Roth money from employer plans to IRAs. Rollovers can invite mischief in the wrong financial advisor’s hands, so this is a win for older investors—and tax simplification.

5. Matching contribution for student loan payments. Starting in 2024, employers can, if they choose, make matching retirement contributions on the dollars their employees spend repaying college loans. Result? Some workers might be tempted to skip retirement savings, knowing their employer is throwing 3% or 4% of their pay into a 401(k) account in their name. By itself, of course, that isn’t enough for a comfortable retirement. Still, many workers are strapped today, paying student debt, higher rents and everything else, so maybe half a loaf is better than none.

6. Automatic enrollment grows. Starting in 2025, newly established 401(k) plans would be required to automatically enroll eligible workers, except for new or very small companies—those with 10 or fewer employees. Enrolled workers will still be free to drop out at any time, yet few do. Research shows that automatic enrollment tends to lift plan participation rates above 90%.

The new law doesn’t require employers to offer a 401(k) plan, however. Labor economist Teresa Ghilarducci of The New School calls this the “huge problem untouched” by the legislation. Only about 35% of working-age Americans report having a 401(k), 403(b) or similar account, says the Census Bureau.

7. Don’t settle for 3%. These automatic enrollment plans can start workers’ savings rates at just 3% of pay, with annual increases of just one percentage point. That’s too low and slow, according to experts. Nobel laureate Richard Thaler, who pioneered the automatic 401(k), recommends saving at least 10% for retirement—and says 15% would be better. These figures include any employer contributions.

To save more, workers might time their savings increases to coincide with their annual raises at work. That way, they can ramp up their savings without seeing a cut in take-home pay.

8. Emergency fund. The 401(k) plan has become a de facto emergency fund for many, with the number of workers taking hardship withdrawals already at record levels. The new law reflects this reality by allowing employers to designate up to $2,500 of employee savings as an emergency fund for each worker.

Currently, workers living on the edge can max out on plan loans, which are usually limited to one or two at a time. A revolving emergency fund, like the one allowed by the new legislation, would make it easier for workers to tap into their savings when the rent is due. Plan administrators see this happen all the time, and want to help their workers.

9. Emergency withdrawals. Victims of domestic violence could take up to $10,000 from their employer plan, no questions asked. A similar provision would allow workers to take $1,000 from their plan once a year for an emergency without owing the 10% early withdrawal penalty.

Sound tempting? It still might be better for workers to borrow the money from their plan, rather than opting for the $1,000 penalty-free withdrawal. A plan loan gets repaid with interest through automatic payroll deductions. Workers avoid owing income taxes on the withdrawal, plus their retirement savings are left intact.

10. Saver’s tax credit. Uncle Sam would match 50% of retirement savings, up to $2,000 annually, made by lower- and middle-income workers. In a twist, this payment of up to $1,000 would be directly deposited into the saver’s retirement account, and not issued as a check.

The current saver’s tax credit is nonrefundable, meaning you have to owe taxes to get the money. Not many lower-wage workers do. Now that the credit is refundable—in the form of a matching retirement contribution—lots more workers should benefit.

11. Lost and found department. People move, change jobs and—believe it or not—lose track of their retirement savings all the time. The new law requires the Department of Labor to create a “lost and found” database within two years where you could type in your name and find any retirement money you forgot about. This is similar to the lost property databases run by the states, which have made it far easier for people to find lost bank accounts and other assets.

Greg Spears is HumbleDollar’s deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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