At SD Mayer & Associates, we pride ourselves on staying ahead of the curve and providing expert insights that help our clients thrive. Today, we’re breaking down SECURE 2.0—a pivotal piece of legislation that impacts retirement plans and financial planning for small to medium-sized business owners, retirement plan administrators, financial advisors, and compliance officers.
What is SECURE 2.0?
SECURE 2.0, officially known as the Setting Every Community Up for Retirement Enhancement Act 2.0, builds upon the original SECURE Act of 2019. The aim is to enhance retirement savings options and make it easier for Americans to prepare for a secure retirement. The provisions that took effect in 2024 bring further improvements to retirement planning and offer significant changes that can benefit your business and employees.
Key Provisions Effective in 2024
1. Increased RMD Age
One of the most impactful changes is the increase in the Required Minimum Distribution (RMD) age. Starting in 2024, the age at which plan participants must start taking RMDs from their retirement accounts has been raised from 72 to 75. This change provides additional time for retirement savings to grow tax-deferred, benefiting those who prefer to delay withdrawals.
2. Enhanced Catch-Up Contributions
For individuals aged 60 to 63, the catch-up contribution limits for employer-sponsored retirement plans have increased. This allows those nearing retirement age to boost their savings significantly. Specifically, the catch-up contribution limit for these age groups is now $10,000, adjusted for inflation.
3. Automatic Enrollment and Escalation
SECURE 2.0 mandates automatic enrollment in new 401(k) and 403(b) plans. Starting in 2024, employers must automatically enroll eligible employees with a default contribution rate of at least 3%, escalating annually by 1% until it reaches at least 10%, but not more than 15%. This provision aims to increase participation rates and ensure employees are saving for their future.
4. Student Loan Matching
Recognizing the burden of student loan debt, SECURE 2.0 introduces a provision allowing employers to match student loan repayments with contributions to the employee’s retirement plan. This will begin in 2024, providing a dual benefit of reducing student debt while boosting retirement savings.
5. Emergency Savings Accounts
Employers can now offer linked emergency savings accounts within their retirement plans. Employees can contribute up to $2,500 per year, with contributions treated as elective deferrals for matching purposes. Withdrawals from these accounts are tax-free, providing a financial safety net while encouraging savings.
6. Small Business Tax Credits
To encourage small businesses to establish retirement plans, SECURE 2.0 increases the startup tax credit from 50% to 100% of administrative costs, up to $5,000 per year, for employers with 50 or fewer employees. Additionally, a new credit of $1,000 per employee is available for employer contributions to defined contribution plans for the first five years of the plan.
The Benefits of SECURE 2.0
For Business Owners
- Attract and Retain Talent: Enhanced retirement benefits can make your company more attractive to prospective employees and help retain existing staff.
- Tax Incentives: Increased tax credits make it financially viable for small businesses to offer competitive retirement benefits.
- Streamlined Operations: Automatic enrollment and escalation reduce the administrative burden on business owners and ensure consistent employee participation.
For Employees
- Increased Savings: Higher catch-up contributions and delayed RMDs allow for more significant retirement savings.
- Debt Management: The student loan matching provision helps employees manage their debt while building their retirement fund.
- Financial Security: Emergency savings accounts provide immediate financial relief without jeopardizing long-term savings.
Conclusion
The SECURE 2.0 Act brings numerous benefits that can enhance the retirement landscape for both employers and employees. By understanding and implementing these provisions, businesses can take advantage of new opportunities to enhance their retirement plans and support their employees’ financial well-being.
If you’re a business owner, retirement plan administrator, financial advisor, or compliance officer looking to maximize the benefits of SECURE 2.0, SD Mayer & Associates is here to help. Contact us today to learn more about how these changes can impact your business and how we can assist you in navigating this evolving landscape.
By integrating these new provisions, you’ll not only comply with the latest regulations but also foster a work environment that values and supports long-term financial health. Join us at SD Mayer & Associates in making informed, strategic decisions for a secure future.
SECURITIES AND ADVISORY DISCLOSURE:
Securities offered through Valmark Securities, Inc. Member FINRA, SIPC. Fee based planning offered through SDM Advisors, LLC. Third party money management offered through Valmark Advisers, Inc a SEC registered investment advisor. 130 Springside Drive, Suite 300, Akron, Ohio 44333-2431. 1-800-765-5201. SDM Advisors, LLC is a separate entity from Valmark Securities Inc. and Valmark Advisers, Inc. Form CRS Link
DISCLAIMER:
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. The services of an appropriate professional should be sought regarding your individual situation.
HYPOTHETICAL DISCLOSURE:
The examples given are hypothetical and for illustrative purposes only.
