SECURE 2.0 Retirement Act Introduces Additional Savings Incentives

• Author: Russell Sawayn
• Posted: 2024-03-20

On December 29, 2022, the SECURE 2.0 Act was enacted into law, ushering in a slew of adjustments to retirement funds. The law included several policies aimed at bolstering long-term pension savings for the typical American, such as automatic membership in 401(k) plans for qualified employees. Among the adjustments are several new benefits for employees in the United States to save for retirement and emphasize long-term financial health.

The SECURE 2.0 Act includes the following retirement planning incentives:
• Gift cards for 401(k) participation
• Student loan 401(k) match.
• 529 plan to Roth IRA rollover.
• Saver's match.
• Emergency savings accounts.
• Automatic 401(k) enrollment.
• Higher catch-up contribution limits
 

Incentive for Bill Retirement

The SECURE 2.0 Act provisions in the comprehensive spending package were intended to encourage both companies and people to emphasize retirement savings. This new legislation expands on 2019 Setting Every Town Up for Retirement Enhancement (SECURE) Act.

The SECURE 2.0 Act promotes retirement savings involvement through tax breaks for participating businesses and adjustments to contribution rules. Many new benefits are especially advantageous to younger investors just starting to prepare for retirement or senior Americans catching up on their retirement funds.
 

529 Plan to Roth IRA Transfer

The SECURE 2.0 Act allows for penalty-free and tax-free transfers of up to $35,000 in qualified assets from a 529 account to a Roth IRA. This can be a welcome shift for those with money left over in their 529 accounts but who do not intend to use it to pay for additional higher education.

The 529 account needs to have been open for at least 15 years to qualify, and the sum transferred to the Roth IRA cannot surpass the total amount donated (plus earnings) prior to the five-year term concluding on the transfer date.
 

Matching 401(k) Student Loans

Companies will be allowed to make 401(k) payment matches depending on an employee's student debt installments beginning in 2024.

The student debt installments will be the same as normal 401(k) donations made by any employee in order to receive the company's match. The regulations and amount of matching vary by workplace, but in many instances, the employer doubles a portion of an employee's payments or so-called voluntary deferrals in excess of a certain amount.

Many individuals have been unable to begin saving for retirement due to high student debt payments. The new retirement legislation permits you to apply student loan repayments to your 403(b), 401(k), or SIMPLE IRA, depending on your employer's rules.
 

401(k) Membership Gift Cards

Employers are presently permitted to promote 401(k) enrollment through long-term rewards such as donation matching but not through short-term cash incentives.

The SECURE 2.0 Act alters this by permitting companies to provide modest rewards, such as low-value gift vouchers, to increase employee involvement in workplace retirement programs. These rewards must not be financed with plan assets.

While the rewards under this move are likely to be minor in comparison to other provisions, workers may appreciate a small additional motivation to contribute to a retirement fund.
 

Saver's Match

The pension saver's credit presently enables eligible workers to receive a tax refund in return for contributions to a retirement account. Employees making less than a certain threshold are eligible for the benefit, typically equivalent to 10%-50% of your pension plan payments, up to $2,000. The benefit is also susceptible to an income-based phase-out.

Beginning in 2027, the SECURE 2.0 Legislation substitutes the saver's credit with the saver's match. Instead of a tax refund on your yearly return, qualified savers will have funds deposited into an eligible IRA or retirement plan.
 

Emergency Funds Plans

Many Americans cannot cover unexpected costs in an emergency and are forced to dip into retirement funds. In reality, 401(k) crisis withdrawals recently peaked. The SECURE 2.0 Act seeks to curtail this practice by enabling employers to pay automatically to a distinct emergency savings account.

This choice is only accessible to workers who are not highly compensated. Your workplace may automatically enlist you in a plan for approximately 3% of your income, with a contribution limit of $2,500 per year.

Withdrawals for eligible situations are not subject to penalties. You can convert your emergency savings account to a Roth account when you quit your employment.
 

Increased Catch-Up Contribution Cap

Americans over 50 can make catch-up payments to their 401(k) account. The SECURE 2.0 Act will enable people nearing retirement age to make higher catch-up contributions.

Individuals aged between 60 and 63 would be able to make $10,000 annual catch-up payments to their employer-sponsored accounts beginning in 2025, which is 50% more than the normal catch-up sum. Moving forward, the $10,000 sum will be adjusted for inflation.
 

Automatic 401(k) Registration

The SECURE 2.0 Act included an automated 401(k) registration clause that will come into action in 2025 for fresh 401(k) and 403(b) plans to urge all qualified workers to participate in their employment retirement accounts and any employer match programs.

The SECURE 2.0 Legislation contains a number of clauses that will affect how retirement funds are incentivized in the future. These provisions have advantages and disadvantages, but their overall goal is to make it simpler for younger employees to begin retirement savings early and to make sure that their assets grow and are secured over time.