The SECURE 2.0 Act: An Easier Way to Save for Retirement

Everyone knows it's important to save for retirement, but sometimes life can get in the way. Changing jobs, helping kids through college, taking time off to care for a family member—these and other situations may cause even the best-laid plans to veer off-course.

New federal legislation can help get those plans back on track. The SECURE 2.0 Act, passed in December 2022, introduces several measures making it easier for people to increase their retirement funds, whether they're nearing the end of their careers, just starting out, or somewhere in between. Thanks to the magic of compounding interest, even incremental increases can make a big difference by the time your retirement years arrive.

Here are some of the ways the new law makes it easier to save for your golden years.

Support for Individuals Nearing Retirement

For people approaching the end of their working days, the new law provides relief in three ways:

• Higher catch-up contributions. Beginning January 1, 2025, people aged 60 through 63 will be able to make a $10,000 catch-up contribution to their workplace 401(k) or 403(b) retirement plan, an increase from the current limit of $7,500. Starting in 2026, the catch-up amount will be adjusted for inflation. The catch-up limit for Individual IRAs, currently $1,000 for people age 50 and over, will also be indexed for inflation, starting in 2024.

• Changes to required minimum distributions (RMDs). The law raises the age at which people are required to start withdrawing funds from non-Roth retirement accounts from 72 in 2022 to 73 in 2023. In 2033, it will raise to age 75. And starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.

• Help with long-term care plans. Starting in 2026, workplace retirement plan administrators will be able to distribute up to $2,500 a year to pay premiums for an employee's qualified long-term care insurance plan, helping people prepare for potentially large expenses not covered by Medicare.

Support for Younger Individuals

For those starting to build their savings, the law makes retirement contributions easier and offers a unique provision to encourage payment of student debt: 

• Automatic enrollment. One of the main reasons Americans reach retirement with little or no savings is that they don't participate in workplace retirement plans, the Act states. As a result, the law requires 401(k) and 403(b) plans to automatically enroll employees, contributing at least 3 percent but not more than 10 percent of their salaries. Every year, this amount is increased by 1 percent until it reaches at least 10 percent, but not more than 15 percent. Employees have the right to opt out, but staying with the program is a surefire way to increase your savings without thinking about it.

• Student debt reduction. To assist employees who may not be able to save for retirement because they are overwhelmed with student debt, the law allows employers to match student debt payments with equal contributions to their retirement plans. This provision starts in 2024.

Support with Emergencies and Job Changes

The law also will also make it easier for employees to save for an emergency, transfer retirement money to a new job, and find information about old plans:

• Emergency savings. Starting in 2024, employers can add an emergency savings account to workplace Roth accounts, allowing participants to contribute up to $2,500 a year. Some contributions may be eligible for an employer match. Accounts are limited to “non-highly-compensated employees," as defined by the IRS. The 2023 limit is $150,000, or ownership of more than 5% of the business.

• Easier transfers. For retirement accounts with a balance of less than $7,000, employers can provide automatic portability, transferring the money to a new plan when an employee changes jobs.

• A retirement plan “lost and found." Every year, thousands of people are unable to find benefits they are owed because their employer moved, changed its name, or merged with another company, the Act states. Many employers also have trouble tracking down former employees to whom they owe benefits. The new law creates a national online database, to be operational by 2025, where employees can find contact information for their plans, reconnect with employers, and obtain their benefits.

These are just some of the highlights of the SECURE 2.0 Act. The law also contains provisions for annuities, charitable giving, and plans that apply to specific types of employees.

Selecting the Right Tools for Your Individual Needs

Everyone's goals and time horizons are different. Meeting with a specialist can help you discover new ways to build and maintain retirement savings that work with your particular situation.  With that difficult period behind us and a new law to help, building a brighter path to the future should be easier than ever.

If you're concerned about saving enough or have questions about your retirement planning, contact a City National Private financial advisor online or call 305.447.1899.

Please note: The content in this article comes from individual opinions and experiences. The content should not be taken as advice coming from City National Bank of Florida. City National Bank of Florida does not offer tax, legal or accounting advice.

‍Investment products are not insured by the FDIC or by any federal government agency. They are not a deposit or other obligation of, or guaranteed by, City National Bank of Florida or any of its affiliates. They are subject to investment risks, including possible loss of the principal amount invested. City National Private does not provide tax or legal advice. Some securities products may be provided by Bci Securities, Inc. City National Bank of Florida is an FDIC insured institution and not a broker-dealer. Bci Securities, Inc. is a registered broker-dealer and insured by SIPC. Bci Securities is an affiliate of City National Bank of Florida under common ownership.

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Sources: 

www.finance.senate.gov

www.irs.gov

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