Why I’m a Fan of SECURE Act 2.0
Recently, the “SECURE Act 2.0” was passed. It builds upon the original Secure Act – also known as Setting Every Community Up for Retirement Enhancement (SECURE) Act.
Normally, when a new law changes the financial landscape, my eyes roll. Rarely do changes seem to benefit consumers. However – this one I like.
Here are a few reasons why I like this new SECURE Act law:
- The RMD age moved back
- It encourages Roth savings
- Future 401(k) auto-enrollment
- Student loan repayment “match” from employers
- Lost & Found database for retirement plans
- New 529 to Roth IRA conversion
Now, let me elaborate on these 6 reasons:
1. RMD age moved back
Born after 1/1/1960? You aren’t forced to take money out of your IRA until you are 75! It used to be 72. This gives planners like me a lot more flexibility and retirees like you possibly some tax relief!
2. It encourages Roth savings
If you aren’t 100% sure what the difference between Roth and Traditional (pre-tax) savings are, click here for a video or click here for a blog on the topic.
Until now, accounts like Simple IRAs and SEP IRAs only had the option of contribution pre-tax dollars. Now, both employee and employer contributions can be designated as Roth!
3. Future 401(k) auto-enrollment
Come 2025, new 401(k) plans will auto enroll participants at a minimum of 3% of their salary. Sure, people can still opt out. BUT – they have to actually make the decision to. Currently, employees have to decide and go through the process of opting IN. Soon, employees will simply start in it and have to opt OUT if they don’t want to participate. It will definitely increase savings numbers!
According to Vanguard Research’s 2021 study, The Power of the Default, participation rate in plans with voluntary enrollment was 28%. They also showed the participation rate for plans with automatic enrollment:
Less than 10% of employees choose to opt out! Savers can be a bit lazy (and honestly overwhelmed) when it comes to decision making, so auto-enrollment just makes it easy.
4. Student loan repayment through payroll
Are you paying down student loans? Ask your employer if you can make payments through payroll deduction. The new law allows those student loan payments to be matched by your employer into your 401(k)! Not every company has this allowance in their plan documents – but you should definitely bring it to their attention. Read more about it HERE.
5. A new “Lost & Found!”
Do you have any idea how many times people tell me they think they might have an old pension or retirement account out there, but they don’t know what company it is with or how to track it down? A lot. According to Bankrate, there were 25 million “forgotten” 401(k) accounts in 2021 with $1.35 trillion in those accounts. This lost & found database could help people claim assets that are rightfully theirs.
6. Savior of the unused 529 accounts
I’ve already written about why I’m a big fan of 529 accounts HERE. There are still concerns about what to do with 529 funds if they go unused. Under SECURE Act 2.0, 529’s that have been open over 15 years may be rolled over into a Roth IRA in the name of the beneficiary! Limited up to $35,000 and subject to annual contribution limits. I LOVE this!
There were definitely a few more changes to the law that I didn’t hate, but these are favorites! 😊 Keeping up with changes in the financial world is not easy. It is one thing I do for my clients.