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The Secure Act 2.0 represents a significant update to retirement planning regulations, building upon the initial Secure Act of 2019. This new legislation, passed as part of a nearly $2 trillion spending package, introduces several provisions aimed at enhancing the retirement savings landscape for Americans. Key changes include automatic enrollment in 401(k) plans, changed to ages for required minimum distributions (RMD’s), 529’s to Roth IRA conversions and many more.
Starting in 2025, new 401(k) plans will require automatic enrollment of employees at a 3% pre-tax contribution rate, which will increase annually by 1% until it reaches 10%. This mandate applies to companies that have been in business for more than three years and have more than ten employees. The goal here is to boost retirement savings from the outset of employment, although employees can opt out. This change could significantly increase retirement savings participation rates among workers.
The age for Required Minimum Distributions (RMDs) has been incrementally increased. In 2023, the age moved from 72 to 73 and is scheduled to rise to 75 by 2033. This delay allows more time for retirement funds to grow, which could be integral in managing longevity risk as lifespans extend.
An interesting provision of the Secure Act 2.0, is that it allows for the rollover of up to $35,000 from a 529 plan to a Roth IRA, provided the 529 has been funded for at least 15 years. This option, available under specific conditions, offers a flexible solution for those who find themselves with excess funds in a 529 plan due to overfunding or changes in educational needs.
For individuals aged 60 to 63, the act introduces a new tier of catch-up contributions to 401(k) and 403(b) plans, starting in 2025. This provision allows for either $10,000 or 50% more than the standard catch-up amount, whichever is greater, providing a significant opportunity for older workers to accelerate their savings as they near retirement.
A change for employers offering 401(k) plans is that they can now choose to direct their matching contributions into an employee’s Roth 401(k) instead of a traditional 401(k). While this option might be less attractive to employers due to the lack of a tax deduction, it provides employees with the potential for tax-free growth and withdrawals on these matched funds.
Starting in 2024, Roth 401(k)s will no longer be subject to Required Minimum Distributions, aligning them more closely with Roth IRAs. This change offers better tax planning flexibility, allowing individuals to let their investments grow tax-free for longer periods. The act has also expanded the Roth contribution options to include those with SIMPLE IRAs and SEP IRAs. This change provides self-employed individuals and small business employees more opportunities for tax-free investment growth.
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Important Disclosures:
Securities and advisory services offered through EWA LLC dba Equilibrium Wealth Advisors (a SEC Registered Investment Advisor).
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.
EWA, LLC dba Equilibrium Wealth Advisors, is an SEC-registered investment advisory firm providing investment advisory and financial planning services to clients.
Investments in securities and insurance products are not insured by any state or federal agency.
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In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.