A New Law Could Boost Your Retirement SavingsFinancial Wellness
The SECURE 2.0 Act builds on an earlier law intended to strengthen Americans’ ability to save for a financially secure retirement. Here are just a few highlights of what’s changed, and some of the provisions that will be effective over the next few years.
A Later Start for Required Minimum Distributions (RMDs)
As of January 1, 2023, the RMD age has been raised from 72 to 73. The RMD age will be pushed to 75 starting in 2033.
In 2024, RMDs will be eliminated for Roth accounts in workplace retirement savings plans.
Increased Catch-up Contributions
Beginning in 2025, employers will be able to let employees ages 60 through 63 make catch-up contributions of up to $10,000 a year to their workplace plan. Then, starting in 2026, the $10,000 limit will be subject to an annual increase based on inflation.
For IRAs, catch-up contributions are currently capped at $1,000 a year for people age 50 or older. Under SECURE 2.0, that limit will be indexed to inflation starting in 2024, meaning the cap could go up in any year from 2024 on based on the cost of living.
Starting in 2024, employees earning more than $145,000 a year and wishing to make catch-up contributions to their workplace plan will be required to put those contributions into a Roth account within the plan. This means they’ll make these contributions on an after-tax basis. After 2024, the earnings threshold will be subject to an annual adjustment based on inflation.
Penalty-free Emergency Withdrawals
Depending upon an employer’s workplace savings plan rules, starting in 2024, an employee may be able to withdraw up to $1,000 a year from their workplace plan to cover expenses related to a personal or family emergency. The withdrawal will be subject to income tax but not the 10% penalty that would otherwise generally apply to a distribution before age 59.5. If this option is allowed, employees will have the opportunity to repay the distribution into their plan account within three years.
Transferring 529 Plan Money to a Roth IRA
Starting in 2024, 529 plan owners will generally be able to move unused 529 savings to a Roth IRA for the 529 account’s beneficiary without triggering taxes or a penalty on the transfer. There will be a $35,000 lifetime limit per account beneficiary on the amount transferred, and other restrictions will also apply.
A Timeline of Changes Under SECURE 2.0
The following change is currently effective:
- RMD age raised from 72 to 73
In 2024, the following changes will be in effect:
- RMDs are no longer required from Roth accounts in workplace plans.
- Employees can withdraw up to $1,000 a year, penalty-free, from their workplace plan to cover an emergency, if this option is allowed by your employer.
- Parents can generally move 529 money to a Roth IRA for the 529 account’s beneficiary, tax-free and penalty-free.
In 2025, the following change will be in effect:
- Employers can let employees ages 60 through 63 make increased catch-up contributions of up to $10,000 a year to their workplace plan.
In 2033, the following change will be in effect:
- RMD age raised to 75.
WAEPA’s Free Financial Wellness Program
WAEPA members have access to a free Financial Wellness Program through our partnership with Ernst + Young (EY). This program includes access to tools and financial advisors to help manage day-to-day finances and work towards long-term goals.
WAEPA has been serving current and former Civilian Federal Employees since 1943, providing exclusive Group Term Life Insurance and Short-Term Disability Insurance. WAEPA members have access to resources, tailored specifically to the needs of Feds and their families. Today, more than 50,000 Feds and their families choose WAEPA to be there for life’s biggest moments.
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