In 2019, the SECURE Act (now dubbed SECURE 1.0) changed many rules surrounding retirement savings to help individuals gain more access to their money. In late 2022, SECURE Act 2.0 was signed into law with major updates related to these retirement and savings options. The provisions are designed to help Americans prepare for retirement by creating more opportunities for saving alongside more flexibility for spending. This blog covers the major changes happening with 401(k) plans.
401(k) Automatic Enrollment
Effective January 1 2025, employers will be required to automatically enroll all eligible employees in 401(k) retirement plans. The rationale behind this mandate is that automatic enrollment will increase participation and help more taxpayers save for retirement. Here are some of the details:
The initial enrollment amount that will automatically go into an employee’s 401(k) is set at a minimum of 3% of gross income and may be set as high as 10%. Each year thereafter, that amount is increased 1% until it reaches 10% (but not more than 15%).
Employees can choose to opt out, but must affirmatively choose it.
Employers will now be allowed to offer small incentives (like gift cards) to encourage employees to NOT opt out and continue participating in the 401(k) program.
Small businesses with fewer than 10 employees, new businesses (those in business for less than 3 years*), church plans and government plans are provided an exception from the mandatory 401(k) enrollment. *These businesses will phase in after year 3.
401(k) and 403(b) Emergency/Hardship Withdrawals
Starting in 2024, SECURE 2.0 allows plan participants to take a penalty-free “emergency” distribution from your retirement account to cover unforeseeable or immediate financial needs. See the details below.
Section 115 of SECURE 2.0 defines “emergency” as an unforeseeable or immediate financial need relating to personal or family emergencies.
The emergency distribution can be up to $1,000 without being subject to the usual additional 10% tax that applies to early distributions.
You can take an emergency distribution once per year – BUT you can’t take another one until you’ve repaid the first one. You’ll have three years to repay the first one.
Additional SECURE 2.0 401(k) Provisions
Increased 401(k)
Catch-Up Contributions
Student Loan Match
Part-Time Worker
Coverage
As you can see, there are significant changes coming to retirement planning options under SECURE 2.0. Whether you are an employer who has to meet the new mandates, someone starting out in your career, or someone working on a retirement plan – we are here to help guide you through the ways you can use the changes to your advantage.
Earl Blackmon, CPA
Avizo Group offers Wealth Management for clients who would like assistance in investing, saving, and portfolio diversification. This is an area of need for many of our clients who want to invest but need someone they know and trust to help them. Earl Blackmon holds a Series 7 and Series 66 license.
