“`html

New Retirement Savings Rules: SECURE 2.0 Act

The SECURE 2.0 Act, signed into law on December 29, 2022, introduces new rules aimed at encouraging retirement savings and removing barriers that deter people from investing in retirement accounts. This legislation also incentivizes small businesses to offer retirement plans to their employees and promote participation in these plans.

With over 50 provisions, SECURE 2.0 will impact retirement savings in various ways. While some changes will take years to fully implement, here are eight key ways SECURE 2.0 could transform your retirement savings strategy:

1. Rolling Leftover 529 Funds Into a Roth IRA

Starting in 2024, funds remaining in a 529 education account after covering qualifying education expenses can be rolled into a Roth IRA. This alleviates concerns about over-saving in a 529, as unused funds can transition into a Roth IRA without penalty. Key rules include:

• The Roth IRA will belong to the beneficiary, typically the child whose education was funded.
• The 529 must be open for more than 15 years.
• Rollovers are capped at $35,000 total.
• Rollover contributions are subject to annual Roth IRA contribution limits.
• The beneficiary must have earned income equal to the rollover amount.

2. Making Larger Catch-up Contributions

From 2025, individuals aged 60 to 63 can make additional catch-up contributions to their 401(k), 403(b), or governmental 457(b) retirement plans. In 2023, those aged 50 or older can contribute an extra $7,500 annually. Under the new rules, those aged 60-63 can contribute an additional $10,000 or 50% more than the regular catch-up contribution, whichever is greater. This limit will adjust for inflation.

3. Matching Student Loan Payments

To ease the burden of student loans on retirement savings, a new provision allows employers to match qualified student loan payments with contributions to 401(k), 403(b), 457(b), or SIMPLE IRA plans. This rule, effective in 2024, matches contributions at the same rate as regular retirement contributions.

4. Changes to Employer Retirement Plans

SECURE 2.0 introduces several changes to employer-sponsored retirement plans, including:

• Small-business startup credit: Employers with up to 50 employees can now deduct up to 100% of the administrative costs of setting up a small employer pension plan and claim an additional credit of up to $1,000 per qualifying employee.
• Automatic enrollment: Starting in 2025, businesses must automatically enroll employees in 401(k) or 403(b) plans once they become eligible, with initial contributions ranging from 3% to 10% of wages, increasing annually up to 15%.
• Benefits for part-time employees: Part-time employees will be eligible to participate in their employer’s 401(k) or 403(b) plan after two consecutive years of service.
• Starter 401(k) or safe harbor 403(b) plans: Employers without retirement plans can offer these plans with contribution limits matching IRA limits, effective in 2024.

5. Emergency Savings Linked to Retirement

Starting in 2024, employers can create pension-linked emergency savings accounts for employees, allowing contributions up to 3% of salaries, with employer matches up to $2,500 annually. The first four withdrawals per year are penalty-free.

6. Penalty-Free Withdrawals in Qualifying Circumstances

SECURE 2.0 introduces new exceptions to the 10% early withdrawal penalty from retirement plans, including:

• Financial emergency: Withdraw up to $1,000 for unforeseen emergencies, with one distribution allowed per year.
• Domestic abuse: Withdraw up to $10,000 or 50% of the retirement account without penalty, with a three-year repayment option.
• Federally declared disasters: Withdraw up to $22,000 without penalty, with the amount included in gross income over three years and a repayment option.
• Terminal illness: Withdraw funds without an early withdrawal penalty.

7. New Rules for Required Minimum Distributions

To prevent the use of tax-advantaged accounts for passing on wealth, SECURE 2.0 changes the age for required minimum distributions (RMDs) from 72 to 73 in 2023, and to 75 in 2033. It also eliminates the RMD requirement for employer-sponsored Roth plans starting in 2024.

8. Updates to the Saver’s Credit

Starting in 2027, the nonrefundable Saver’s Credit will be replaced by the Saver’s Match, offering 50% of up to $2,000 per person in federal matching funds deposited into retirement accounts. The match phases out at $20,500 for single taxpayers and $41,000 for married couples filing jointly.

9. Retirement Savings Lost and Found

A new national online database, developed by the Department of Labor, will help individuals locate retirement benefits from companies that have moved, closed, changed names, or merged.

The Bottom Line

SECURE 2.0 introduces numerous provisions to make retirement saving easier for individuals and employers. With new rules allowing the rollover of leftover 529 funds into Roth IRAs and penalty-free withdrawals under certain circumstances, people may feel more encouraged to save for retirement, knowing they can access their funds as their needs change.

While some provisions will take time to implement, it’s always a good idea to revisit your budget, check your credit score and report, and evaluate your retirement goals.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you navigate your financial future with confidence.

“`