Strategic Retirement Planning with the SECURE 2.0 Act

As 2024 kicks off, business owners and individuals face significant changes in retirement planning due to the SECURE 2.0 Act. This legislation, a sequel to the original SECURE Act, introduces an array of amendments designed to enhance retirement savings and simplify plan administration. 

As someone at the helm of a business or managing substantial personal wealth, understanding and adapting to these changes is not just a matter of compliance, but a strategic necessity. The adjustments made by the SECURE 2.0 Act are extensive, impacting everything from the timing of Required Minimum Distributions (RMDs) to the intricacies of Roth account management. These changes are tailored to provide more flexibility, encourage longer periods of savings and offer new avenues for tax-efficient planning. 

Key Provisions Impacting Your Retirement Planning 

  1. Required Minimum Distribution Adjustments: One of the most notable changes is the delay in the age for starting RMDs. The SECURE 2.0 Act increases the age to 73 in 2023 and further to 75 by 2033. This change allows you more flexibility in planning withdrawals from your retirement accounts, potentially leading to more efficient tax planning and longer investment growth periods. 
  2. Roth Account Adjustments: Starting in 2024, Roth accounts in retirement plans will no longer be subject to pre-death RMDs. This alignment with Roth IRA rules removes a significant hurdle, making Roth accounts more attractive for long-term growth and estate planning. 
  3. Enhanced Part-Time Employee Eligibility: Beginning in 2025, more part-time employees will be able to contribute to retirement plans. This change impacts business owners directly, as it broadens the scope of who can participate in your company’s retirement plan. 
  4. Catch-Up Contribution Modifications: From 2025, individuals between 60 and 63 can make higher catch-up contributions to their retirement plans. However, starting in 2024, all catch-up contributions must be made on a Roth basis for those earning above a certain threshold ($145,000 as of the Act’s passage). This shift may necessitate reconsidering your contribution strategies, especially if you’re in the higher income brackets.
    • In 2024, individuals participating in employer-sponsored retirement plans such as 401(k), 403(b), or 457 plans will see an increase in the maximum contribution limit. The new cap will be $23,000, which is a $500 rise from the 2023 limit for 401(k) contributions.
    • For 2024, the catch-up contribution limits for workers aged 50 and above will remain unchanged. These employees can contribute an extra $7,500 as a catch-up amount, the same as in 2023. This means that the total possible contribution for employees in a business in 2024 can reach up to $30,500.
  5. Student Loan Match: A new feature of SECURE 2.0 enables employers to match employee student loan repayments starting in 2024. This feature could be a game-changer for employers seeking to attract and retain talent burdened with student loans, while also encouraging their retirement savings. 

These changes necessitate a fresh look at your retirement planning strategies. The shift toward Roth contributions, especially regarding catch-up contributions, may require a reevaluation of your tax planning approaches. The longer deferral period for RMDs offers more flexibility and can be integrated into your long-term wealth preservation strategies. 

Additionally, the new provisions affecting part-time employees and the introduction of student loan matches can impact your business’s retirement plan offerings. These changes may require updates to your company’s retirement plan documents and communication strategies to ensure your employees are well-informed. 

Planning Ahead 

Given these significant changes, it’s crucial to start planning now. Consider consulting with your financial advisor to understand how these changes affect your personal and business retirement strategies. Review your current retirement accounts, especially if you’re nearing the age for RMDs, to optimize your withdrawals and tax implications. 

For your business, work closely with your HR and benefits teams to understand the impact on your retirement plan offerings. You may need to update your plan documents and educate your employees about the changes, especially regarding the new Roth contribution requirements and options for student loan repayments. 

Questions? 

The SECURE 2.0 Act brings substantial changes to retirement planning in 2024, with a mix of opportunities and challenges. These changes offer new avenues for tax-efficient retirement savings and require proactive adjustments to your financial planning strategies. By staying informed and working with financial professionals, you can navigate these changes effectively to maximize the benefits for both your personal finances and your business. Contact an Adams Brown advisor if you have any questions about your situation. 

Source: IRS.gov