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4 Things You Should Know About the SECURE Act 2.0

February 7, 2023

You’ve likely heard about the changes to the original SECURE Act of 2019, aptly named the SECURE Act 2.0. But unless you’ve sat down to read the 350-page document – I know. In your spare time, right? – you might not know how it will affect you.

Here are four key takeaways that you should be aware of:

Maximum Increase in Retirement Accounts

Beginning in 2025, those retirement plan participants who are aged 60 to 63 can save even more in their 401(k), 403(b), or 457(b) plans. Currently, participants who are 50 or over can save an additional $7500 over the maximum contribution of $22,500. Starting in 2025, those aged 60 to 63 can save an *additional* 50% of the catch-up.

For example, if the catch-up amount stays at $7500, a 60-year-old can save an additional $3750. Additional to note: If your income is in excess of $145k, your catch-up contributions must be made as Roth (after-tax) contributions.

Student Loan Payments and Matching 401(k) Contributions

Today, many employees are missing out on the funds employers match when they make a 401(k) contribution. Beginning in 2024, employers can provide those matches based on student loan payments. Stated a different way, your student loan payments count as if you made a contribution to your 401(k) and your employer will match those funds in your 401(k).

Yahoo Finance provides this example of how this works:

The situation: To give a better visual imagine Dave, a fresh college graduate with student loan debt starts a new job that offers a salary plus benefits. One of the benefits is a 3% company match. Traditionally this match applies to his retirement contribution, so when Dave contributes 3% of his salary to his company-sponsored 401(k), he’s met with an additional 3% from his company.

The problem: When Dave contributes to his 401(k), it puts him in a great spot for retiring on time down the road, but he now can’t afford to save for a house and pay down his student loan debt at the same time. He has to choose one or the other. One leaves him as a prolonged renter spending money on an asset that he’ll never own; the other leaves him extending student loan payoff and accruing additional interest.

The solution: Student loan matching allows his company to match his student loan payments instead of a retirement contribution. So the result looks like this:

Dave is able to pay down his student loans avoiding additional interest charges. Dave can get a jump start on saving for a home preserving thousands on potential rent. Dave gets a compounding effect from his company’s retirement plan contributions.

Unused 529 Plan Funds Can be Rolled into Roth IRAs

I’m often asked by parents who are considering opening a 529 college savings account for their child, “What if they don’t use it?”

Starting in 2024, parents and other loved ones no longer need to worry, at least for $35,000 worth. If the 529 has been open for at least 15 years, individuals will be allowed to roll up to $35k from a 529 to a Roth IRA in the name of the student beneficiary.

Great news for those of you who have “lost” old 401(k) accounts

Another worry I often hear is regarding old employer retirement accounts. Maybe you had a modest amount in your 401(k) and then left that job. Perhaps you’ve moved many times, and that old company has merged with another. It can be very difficult to find YOUR money.

The SECURE Act 2.0 will establish a “Lost and Found” for old retirement accounts. The Dept of Labor has two years to get this done, so in the meantime, if you’ve lost an account, let me help you find it!

I know that this new legislation can be hard to navigate. We all look at this information and ask the question, “What does this mean for ME?” If you have questions about these changes and want to help ensure you’re not missing out on anything that might benefit you, let’s talk.

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