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SECURE 2.0 Act Enhancements Across the Retirement Continuum
It’s not the most imaginatively named legislation, but the SECURE 2.0 Act expands the 2019 SECURE Act to make it easier to have a successful retirement. The legislation tackled retirement savings at several points on the financial journey, with a provision to enhance or facilitate saving and investing for almost everyone.
Whether you have student loans, need to catch up in the final years before retirement, are facing taking required minimum distributions in retirement, or want to enact a charitable giving strategy, new rules create a smoother path.
Combining all the different facets into one piece of comprehensive retirement legislation is an efficient way to enact changes, but it’s also a good reminder that retirement is never a “one-and-done.”
It is a continuum in which you spend the decades of your working years accumulating retirement savings, and then you flip to decumulation as soon as you retire. The two mindsets – of saving and spending – are very different. But the planning you do at each stage of the journey impacts the stages to come.
Just like taxes, retirement requires a multi-year financial planning strategy to keep you on track. Our quick read breaks down the major changes and will hopefully get you thinking about both your current stage and what you can do to maximize your retirement assets for the stages to come.
The Early Stages: Automatic Enrollment, Emergency Savings, and Student Loan Matching
Automatic enrollment in a retirement plan can mean building up invested savings from the earliest years of a career, which provides the longest amount of time to benefit from the power of compounding. Beginning in 2025, new employer-sponsored plans will be required to automatically enroll eligible employees, with a contribution rate of at least 3%. This is coupled with new rules around portability. These often lower-balance accounts will also be allowed to be automatically transferred to a new plan in the event of a job change.
The 10% penalty on withdrawals from tax-deferred retirement plans often puts saving for retirement in opposition to building up an emergency fund. Not anymore. Starting in 2024, plans are allowed to add designated Roth accounts for emergency savings for non-highly compensated employees. Contributions are limited to a maximum of $2,500. The first four withdrawals in a year from the account will be penalty-free.
Student loan payments can be one of the bigger bites out of the paycheck in earlier career stages. Trying to pay off debt and contribute to retirement accounts is often out of reach. The new law mitigates this by allowing an employer to match student loan debt payoff amounts, so retirement savings can still accrue.
Late Career Catch-Up Contributions Are Increasing
The catch-up contribution for those 50 and above is one of the best ways to increase your retirement savings in the later years of your career. For 2023, the catch-up amount is increasing to $7,500. Beginning in 2025, the catch-up for workers aged 60, 61, 62, or 63 will be even larger. These employees are allowed to contribute the greater of $10,000 or 150% percent of that year’s inflation-indexed catch-up amount.
However, the tax treatment of catch-up contributions is changing. if prior-year earnings are more than $145,000, the age 50+ catch-up contributions must be made with after-tax dollars to a Roth account.
The Decumulation Phase Gets More Flexible
Tax-deferred contributions to retirement accounts lower taxable income in the years when you make them, but the IRS eventually comes looking for their cut. The age to begin required minimum distributions (RMDs) is moving from 72 to 73 in 2023, providing an extra year for retirees that want to take advantage of lower asset values by converting some other of their savings in tax-deferred accounts to a Roth IRA. The amounts converted will lower the value of the account, which will reduce the amount of the RMD.
Beginning in 2033, the age for RMDs will move to 75. This expanded window can provide for significant tax-planning strategies, including the timing of asset sales and more time to convert additional funds to a Roth for income and tax planning.
The Bottom Line
Starting early and taking advantage of the tax benefits – and the power of compounding – are the key features of the years in which you are saving for retirement. The goal is to retire successfully and have enough to live the life you want. But saving is just one piece of the puzzle. Thinking strategically about retirement at every stage can keep your plans on track.
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The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
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Making a budget might seem overwhelming at first, but hear this: You can do it. How? By breaking down the process a bit.
What Is a Budget?
Real quick though, let’s define the word budget. A budget is just a plan. It’s not a restriction on spending—it’s a plan for what you’ll do with your money. It’s a plan for what’s coming in and what’s going out.
When you learn how to make a budget—and do it every month—you’re giving your money purpose. You’re taking control. Goodbye, money anxiety. Hello, money goals.
Small companies shouldn’t forgo retirement savings just because a 401(k) plan can be expensive to set up and maintain. There are options specifically for smaller businesses: a Savings Incentive Match Plan for Employees (SIMPLE) plan, a Simplified Employee Pension (SEP) plan, and a SOLO 401 (k).
“How do I get my money out of my retirement plan and into my checking account?”
The question is not as simple as it appears – that’s why people ask it. They’re not asking about the mechanics of a 401(k) withdrawal. They want to understand the switch from saving to spending, and it’s an entire cascade of questions covering how to decumulate assets in retirement. These include:
• When should I take social security?
• How can I ensure I’ll have enough income for my needs?
• How can I invest for growth without taking too much risk?
• What about taxes?
At University Financial Strategies our mission is to help families think beyond just saving for college, but helping leverage strategies that leverage your unique situation to help you save on college costs. We take into consideration topics like specialized college-planning strategies for business owners, planning for financial aid, school-specific scholarships, coordinating college planning with grandparents, cash-flow strategies and options for covering shortfalls, to name just a few.
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The information on this site is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, University Financial Strategies, LLC.(referred to as "University Financial Strategies") disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement and suitability for a particular purpose. University Financial Strategies, LLC.does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments.
Your use of the information is at your sole risk. Under no circumstances shall University Financial Strategies, LLC.be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if University Financial Strategies, LLC.or a University Financial Strategies, LLC.authorized representative has been advised of the possibility of such damages. In no event shall University Financial Strategies, LLC.have any liability to you for damages, losses and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.