9 Ways SECURE 2 0 Will Change Retirement
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
hi my name is Jim and I was retired I'm back
from a week down in Florida and I was able to pack some sunshine in my overhead bags I
brought it back for a Super Bowl weekend go Eagles I've been reading a lot about
secure 2.0 that huge retirement bill that was included in the Omnibus Bill passed
at the last moments of the last Congress in this video I'm going to review nine ways secure
2.0 will change your retirement and I'm going to include three for people who are currently
saving for retirement three for those approaching retirement and three more for those like me
who are in retirement stay tuned hey before I begin will you please like And subscribe to this
channel the more likes the more subscriptions the higher this will be in the search results and I
want to share some of the Lessons Learned in my early retirement I'm now in year seven and I'm
a DIY retiree I'm not selling a book or trying to sell you a plan I'm just sharing advice so
please like And subscribe thank you now let's begin with three changes that affect those
who are currently in the workforce saving for retirement now these will phase in over time
as the law goes into effect and as plans change now beginning in 2025 employers must include
an automatic enrollment for new employees in their retirement savings plans those are the
401ks or 403bs it used to be when I was young you had to go and actively enroll
in those plans when you are eligible then they made it easier some plans to enroll and
by 2025 plans must include this option this is the exception for government plans to phase in after
that but mostly more people will have an automatic enrollment starting at three percent and working
its way up to 10 percent now you can always unelect and withdraw from the enrollment
but starting out employees will have to be automatically enrolled in the plans and that
means more people will be saving for retirement the second major change for current workers is
there are many more Roth options now 401K is a pre-tax dollars and you get a tax deduction if you
meet certain thresholds Roth you pay taxes today for the promise of tax-free interest and
withdrawals later in life it's one of the best inventions from a Delaware Senator ever look him
up Roth Last good Senator Delaware probably had so more Roth options are going in for
current employees those employees of small employers who are self-employed people
will have simple and SCP Roth options also more 401ks have Roth components and employees
can elect either tax free Roth in the future by paying taxes now or 401K pre-tax dollars it used
to be that employer contributions the match up to three percent in most cases would go into
the pre-tax dollars and the new law will now allow employers and employees to elect to have
those contributions the match contributions from the employer go into Roth accounts and that
means more Roth dollars for your retirement and it finally one change for those
that are still paying off a student loan employers will be allowed to match student
loan repayments by recognizing those as elective deferrals into their plans now again
that's up to the employer and right now student loan repayments are paused by the presidential
uh executive order and a court challenge so it may work out that in the future if you're paying
back a student loan your employer will match it into your retirement savings speaking of those
student loans and college tuitions there's one other change here in the new law and it relates
to 529 funds the new law allows you to take those excess 529 funds and transfer them with limits
into a Roth IRA for the same beneficiary now the 529 must be in existence for at least 15 years
contributions from the last five years are not eligible and the conversions are actually subject
to the Roth contribution limits so they're limited each year and there's a maximum lifetime limit
of thirty five thousand dollars but again it's a little way of moving anything that's parked into a
529 into your retirement Savings in a Roth account now there's another change for current
employees I want to caution you about that I'm not going to highlight as one of the
great ways this law is changing and that is you'll be able to withdraw from your retirement
plan without a 10 penalty for more reasons it used to be that you had to keep it there
until you were age 59 and a half and there were a few exceptions but that was it if you withdrew
earlier you got a 10 penalty and now there are additional reasons for national natural disasters
health concerns terminal illness domestic abuse personal financial emergencies up to a certain
level now you're allowed to withdraw all the money without the 10 penalty for these cases but
you'll still have to pay ordinary income taxes on those amounts a much better approach is to build
up an emergency fund of your own and don't touch the retirement dollars for these emergencies
now let's move on to three changes for those that are approaching retirement and there are big
changes for these workers number four in the nine ways is catch up contributions for those age
50 and above will now be indexed with inflation beginning in 2024 they were always increased
ever so sporadically by Congress and if you look at a video that I made early in my channel I
highlighted the contribution amounts because I've always believed that adding to those contribution
levels with catch-up contributions after your age 50 is very important pay down debt build up a cash
cushion and max out retirement savings well now that'll be easier to do because those contribution
limits for catch-up will be indexed to inflation now for instance a thousand dollar catch-up
contribution is allowed on IRAs and that dollar figure will go up over time in a 401k
the catch-up contribution is 7 500 and again that will go up over time so that's a big plus for
those that are approaching retirement and want to max out their retirement savings now beginning
in 2025 there will be an additional layer of catch-up contribution for those that are in ages
60 through 63 don't ask me why those numbers in that 64 65 and 66 too but for those people in that
bracket they will be allowed to contribute with a catch-up contribution of ten thousand dollars or
150 percent of the age 50 catch-up limit as that goes up with the index now there's a caution
here and that's number six on the big changes there's a requirement that the catch-up
contributions must go into a Roth account if your salary is more than 145 000 so you and your
tax consultant will have to figure out when those catch up contributions make sense and finally let
me highlight three final reasons of the nine why secure 2.0 will change your retirement and these
apply to those of us who are currently retired and number seven is that we will see later rmd
ages now secure the original act in 2019 raised the rmd age from 70 and a half to 72.
Well secure
2.0 now raises it further based on how old you are for those of us born in the 50s the rmd age
will be 73. if you're born in 1960 or after the rmd age will be 75. so that means
there'll be more wiggle room for planning Roth conversions and tax planning between
retirement and those rmd dates the rmds exist because it's Uncle Sam's way of making
sure tax deferred dollars eventually get taxed there's another little quirk in here about
inheriting a retirement account from your spouse it used to be that if you had inherited an IRA
for instance from your spouse it was rolled into yours and now with these different rmd ages they
added a little wrinkle if the younger spouse dies for instance and she had a r d age of 75 the
older spouse could elect to instead of rolling it into his Ira treat it as if the spouse were
still alive and start taking rmds at the age the spouse would have been 75.
It's a little Quirk and
I don't know who stuck that in a bill but oh well number eight on the changes is a lessening of
the penalty for missing an rmd it used to be if you forgot to make an rmd you were taxed at 50
percent of that rmd level and it went to Uncle Sam now that penalty that excise tax on
a missed rmd will go to 25 percent or 10 if you correct it in a timely manner there's
still some regulations to specify what timely means but overall that means less chance of a very
expensive mistake with your rmds even a 10 penalty is not worth it just plan to take your rmds if
they're required finally number nine secure 2.0 eliminates rmds for Roth 401ks there was a
quirk in the old tax code that an a Roth IRA had no rmds but a Roth 401k did now most people is
simply rolled over the Roth 401k into a Roth IRA before that rmdh and that's what I was planning
to do this law just makes that unnecessary I'll probably go ahead and do it anyway to simplify my
bookkeeping note that that change on Roth 401ks will take place in 2024.
If you're due to
take an rmd for a Roth 401k this year you should probably roll it over before that rmd
age so those are my nine ways that the secure 2.0 will change your retirement now there are
a ton of other changes in fact my eyes were going blurry trying to read all of these things
in the last month I think it's called secure because it's going to secure the jobs of
financial planners tax accountants and IRS agents for quite some time but I'll close with
my standard warning I am not a financial planner I'm just a DIY retiree so please take these as
entertaining ideas from one educated consumer to another always do your own due diligence and
seek out a professional if you need one thanks
