Understanding Secure Act 2.0
Secure Act 2.0 has over 90 provisions in it. Here are the top 5 that are most likely to affect you.
1) Employers can match student loan payments: In an effort to help Millennials and Gen-Z get a jumpstart on retirement, employers can now elect to make a matching contribution to their company 401k plans if the employee is still paying off student loans. This provision is new in 2024, so be sure to ask your employer if they offer a student loan payment matching program.
2) Rollover unused 529 money into a Roth IRA: You can now rollover up to $35,000 of your child's 529 College Savings Account into a Roth IRA for them, with certain limitations. The 529 account must exist for at least 15 years before you can begin rollovers, and the contributions have to be at least 5 years old to be eligible. The takeaway message is that you should setup a 529 plan early, and make contributions often.
3) Automatic enrollment into retirement plans: Beginning in 2024 new employees will automatically be enrolled in 401k or 403b plans when they begin working. Also, the amount contributed from each paycheck will begin at 3%, and increase by 1% per year, until it reaches 10%. Employees will need to proactively make changes to their retirement plan contributions if they do not want the automatic annual increases to occur.
4) Optional treatment of employer contributions as Roth: If your employer offers a 401k match, it may be possible to have that match treated as a Roth contribution. This means that you will pay income tax on that amount today, but it will grow tax-free and can be withdrawn tax-free in retirement. Another attractive feature of the Roth contribution is that they can be withdrawn without penalty prior to retirement age, a convenient option for those pursuing FIRE.
5) Starter 401k Plans and Safe Harbor 403b Plans for small businesses: The purpose of this new plan is to encourage small employers to set up plans that enable their workers to save for retirement through deductions from their paychecks. This new plan design allows only for employee deferrals. Employer contributions are not permitted.
