The Secure 2.0 Act of 2022 has several provisions that could significantly impact your retirement savings, and some of the most important ones are set to take effect in 2024. The legislation was designed to make it easier to save for retirement, streamline retirement rules and reduce the costs that employers pay to set up retirement plans for their workers.
Here’s a look at the biggest changes coming next year.
Employers Help Student Borrowers Save More
If you have federal student loans, you might be able to increase your retirement savings while reducing your college debt.
“Beginning in 2024, employers have the option to aid their employees with their student loans through a unique retirement plan,” said Terry Turner, a financial wellness facilitator and writer for Annuity.org. “By treating the employee’s student loan payments as retirement savings contributions, the employee can receive a matching contribution from the employer without having to lower their salary. This option is available for 401(k), 403(b), and SIMPLE 401(k) retirement plans.”
The RMD Age Is on Its Way Up to 75
One of the biggest changes from the Secure 2.0 Act is that it raised the age for required minimum distributions (RMDs), which is when you must start withdrawing money from your retirement account.
It rose from 72 to 73 in 2023 and will go up to 75 in 2033. While that change already happened this year, it’s important for retirees to know that if they turn 72 in 2023, their first RMD for 2024, when they turn 73, is due on April 1, 2025.
“This means that they can keep their money in the account for a longer time, giving it more opportunity to grow,” said Baruch Silvermann, CEO of The Smart Investor. “This increased RMD age also gives people more time to contribute to their retirement accounts. So if you’re still working and want to keep saving for retirement, you have a longer period to put money into your account and potentially increase your savings even more.”
“By delaying RMDs, you can also delay paying taxes on the money you withdraw,” Silvermann said. “This can be especially helpful if you’re in a higher tax bracket because it lets you postpone your tax payments and potentially pay taxes at a lower rate when you eventually start taking the withdrawals.”
Designated Roth Accounts Will Be Exempt From RMDs
If your employer offers a retirement plan based on after-tax contributions, you’ll soon be able to contribute to it without worrying about being forced to tap it at age 73 — or ever.
“One of the most notable retirement planning changes beginning in 2024 is that designated Roth accounts (DRAs), such as Roth 401(k) plans, will no longer have required minimum distributions (RMDs),” said Cameron Valadez, CFP, AWMA, CPFA, founder of Planable Wealth and host of the Retired-ish podcast. “This is a key change since previously this was the primary reason for many retirees to do a rollover of their DRA to a Roth IRA, which never was subject to RMDs.”
High Earners Must Use Roth Accounts for Catch-Up Contributions
The IRS allows workers nearing retirement to exceed the standard contribution limits of tax-advantaged accounts once they turn 50. In 2023, catch-up contributions allow older workers to sock away an extra $7,500, and they can do it on a pretax and/or Roth basis — but that’s about to change for those with high incomes.
“Effective in 2024, high-wage earners over age 50 will be required to use the Roth option for catch-up contributions to their employer plan,” said Valadez, who noted that the high-wage income threshold is $145,000. “One unique caveat to this rule set forth by the Secure 2.0 Act is that if the employer plan does not offer a Roth option, no one who would otherwise be eligible can make a catch-up contribution to the plan even if they are not a high-wage earner.”
You Can Roll Unused 529 Cash Into a Retirement Account
The Secure 2.0 Act will allow 529 college savings plan owners to use some unused funds for the beneficiary’s retirement beginning in 2024, but there are several important rules.
“In general, the funds must be moved directly from the 529 plan to a Roth IRA in the name of the 529 plan’s beneficiary,” Valadez said. “The beneficiary must have earned income, the 529 plan must have been maintained for at least 15 years and any contributions to the 529 plan in the last five years — including earnings on those contributions — are not eligible to be moved to the Roth IRA. The IRA annual contribution limit applies — less any other IRA or Roth IRA contributions during the year — and the maximum amount that can be transferred in a lifetime to that beneficiary is $35,000.”
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