Secure 2.0: optional provisions kick in to help retirement savers with emergencies and student loan debt
Connecting retirement savings with emergency expenses help consumers stay on track with their goals. (iStock)
The Secure 2.0 Act of 2022 has several new optional provisions kicking in at the start of 2024 that will further enable plan sponsors to help improve their retirement preparedness.
The Act is designed to help Americans save more for retirement and was passed by Congress and signed into law by President Joe Biden last year. One of the highly anticipated provisions allows for up to $1,000 to be accessed from retirement savings for emergency needs without incurring the early withdrawal tax penalty.
The provision, which is optional for employers to implement, enables individuals to take up to $1,000 per year in penalty-free withdrawals from their retirement savings for unexpected or immediate financial needs related to personal or family emergency expenses. One distribution is allowed per year, with the option to repay it within three years.
"Section 115 of the SECURE 2.0 legislation could help improve many retirement savers' future outlooks in 2024," Corebridge Financial President of Retirement Services Terri Fiedler said. "This provision can help retirement savers who struggle to balance their desire to save for the future with current competing financial priorities, particularly the need to plan for the unexpected.
"Connecting retirement savings with emergency expenses can encourage actions that improve retirement savings behavior, including making larger retirement contributions and increasing plan enrollment, while also helping to improve overall financial well-being," Fiedler continued.
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New provision helps with student loan debt
The new optional provisions also enable employers to support their employees with student loans. Section 110 allows employers to match an employee's qualified student loan debt payment with a corresponding contribution to the employee's retirement plan account – whether that's a 401(k), 403(b), SIMPLE IRA, or for government employees, a 457(b) plan.
"With federal student loan repayments resuming as of this past October, we know this is top of mind for many retirement savers," Fiedler said. "In a recent Corebridge survey, three out of four borrowers said that resuming student debt repayments will impact their ability to save for retirement."
The provisions are optional, and some employers have reported hesitancy about building new programs, such as student loan payment matching or emergency savings sidecars for retirement plans, according to a planadviser report.
"Some of the new provisions of SECURE 2.0 venture into uncharted territory," Rob Austin, Alight Solutions head of research, told planadvisor. "For example, plan amendments and administrative programming must be built from scratch, and that takes time. Layer in the fact that some of these provisions have some legal uncertainty, and you can quickly see why many plan sponsors are not jumping in right away to add them."
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Secure 2.0 corrections bill
Congress recently released a discussion draft for fixes to technical errors in the SECURE 2.0 act, which include changes to allow catch-up contributions and provide parity for Starter 401(k)s, according to the American Retirement Association (ARA).
Catch-up contributions (Section 603 of SECURE 2.0)
The drafters of Secure 2.0 intended initially to allow for an increase in "catch-up" contributions for those nearing retirement. Beginning in 2025, individuals who are 60 to 63 years old were supposed to be able to put a more considerable sum of their income into their retirement plans, including 401(k), 403(b) plans, SIMPLE IRA and SIMPLE 401(k).
The Secure 2.0 Act will allow these savers to make catch-up contributions of up to $10,000 annually or 50% more than the regular catch-up contribution amount in 2025 to their workplace plan that year. Those who are 50 or older with wages over $145,000 during the previous year will be required to make catch-up contributions to a Roth account in after-tax dollars, according to Fidelity.
However, because of a technical error, this provision was removed. The corrections bill would make the original intent effective without removing catch-up contributions.
Starter 401(k) (Section 121)
The draft also includes a change to fix an inadvertent error involving the contribution limit for the new Starter 401(k)s. A summary by the Senate Finance Committee reflected an intent for the contribution limits of the Starter 401(k)/403(b) plans to be the same as the contribution limit for IRAs.
However, the provision limited contributions to $6,000 (indexed), which is the 2022 limit and is lower than the IRA limit in 2024. The correction effectively says that the starter limit will match the IRA limit.
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