The SECURE Act and Secure Act 2.0 brought significant changes and adjustments, reforming the way people save. The legislation aims to help people prepare effective estate plans and improve their retirement savings. Millions of people in the United States have little or no retirement savings. Too many in this category are over 50 years of age. The federal government signed the SECURE Act and SECURE Act 2.0 into law to help Americans save money for their retirement years. Despite some drawbacks for beneficiaries of retirement accounts, both pieces of legislation stand to substantially improve the average worker’s options for retirement savings. Schedule an individual consultation with an experienced estate planning lawyer at Harrison Law, PLLC, by calling (480) 320-2310 and learn more about the SECURE Act and estate planning.
What Is the SECURE Act?
Lawmakers introduced the SECURE Act in 2019. According to the guidance of the Strategic Human Resource Management (SHRM), the SECURE Act changed the retirement plan designs, administration of the plans, and compliance requirements to improve the incentives for saving. The SECURE 2.0 Act of 2022 was signed into law at the end of the 2022 calendar year. The more recent legislation aims to improve the financial readiness of Americans for the later years of life and strengthen the country’s retirement system.
The updated structure, which builds on the provisions of the original Act, offers a number of benefits and incentives for older adults nearing retirement age. The legislation also seeks to help younger adults pay off debt while saving and having access to emergency funds if necessary. The legislation allows you to invest more assets in savings accounts with tax advantages and withdraw the funds later in life to maximize the benefits. Further, the Act makes it more straightforward for small businesses to set up and offer employees 401(k) plans with improved investment options.
Top Retirement Reforms of Secure Act 2.0
The SECURE Act 2.0 addresses problems over the inability to access retirement accounts without penalties when unplanned life events occur. Plan sponsors, such as employers, can create emergency savings accounts that automatically link to retirement plans. The provisions allow access to the funds for emergency personal expenses without penalties. Some other benefits include the following:
Automatic 401(k) Enrollment
One change that is sure to have a significant impact on the general public, regardless of age, is automatic 401(k). While some smaller or new companies are exempt, and the rule does not take effect until 2025, new plans will automatically enroll eligible employees as participants. The default contribution rate is at least three percent of the worker’s salary and will increase yearly until it reaches ten percent. Employees who do not wish to participate may still opt out, essentially reversing the expectation that they opt in.
Improved Catch-Up Contributions
Many adults are behind or have little savings for retirement. Under the new guidelines, adults 50 and over can make catch-up contributions to increase savings in 401(k) plans and individual retirement accounts.
Adjustments to the Age RMDs Begin
Required minimum distributions, or RMDs, are the minimum amount of funds that retirees must withdraw from their retirement accounts every year. Developing a sound RMD strategy is one of the most challenging hurdles to overcome for effective retirement and estate planning. The Act adjusts the age that RMDs begin. This age will vary, depending on birth year.
How the SECURE Act May Impact Your Retirement Plan
The SECURE Act updated many rules regarding retirement accounts. The legislation offers many advantages to businesses and employees to make offering retirement plans and saving more affordable and attractive. Some of the changes that may impact retirement plans include the following:
- Automatic retirement plan enrollment
- Automatic escalation of retirement plan contributions
- Expanded retirement savings eligibility for part-time employees
- Increased catch-up contributions
- Matching employer contributions for student loan payments
- Access to retirement savings for emergencies without paying early withdrawal penalties
- Option for Roth treatment of employer after-tax contributions
The development and passage of the Setting Every Community Up for Retirement Enhancement, or SECURE Act, in 2019 allows Americans to enjoy many tax-advantaged retirement account improvements. The SECURE Act 2.0 expands on those improvements and provides additional benefits, making it easier to save for retirement.
The SECURE Act’s Impact on Trusts as IRA Beneficiaries
Before the passage of the SECURE Act, all estate beneficiaries inheriting an individual retirement account IRA could choose to receive payments throughout their lifetime. One of the most significant changes under the Act is that the distribution period for all inherited individual retirement accounts IRAs is ten years following the death of the original individual retirement account IRA owner. For see-through trusts, the maximum distribution time frame is five years.
The SECURE Act 2.0 and Estate Planning
The SECURE Act and SECURE Act 2.0 facilitates many Americans’ use of a variety of wealth management and estate planning tools that previously posed significant barriers to access. Whether you are setting up an estate plan for the first time or hoping to further develop a sound strategy already in place, revisiting the current arrangements to ensure you take advantage of all the retirement savings opportunities afforded by the recent legislation is important to a robust plan for your financial future. Individuals in Arizona can reach out to Harrison Law, PLLC and schedule an estate planning consultation to ensure their retirement savings plans make the most of the SECURE Act and estate planning benefits that fit their circumstances.
Inherited IRA Rules: Non-Spouse and Spouse Beneficiaries
Spouse and non-spouse beneficiaries inheriting individual retirement account IRAs may collect tax-free payments or withdrawals without tax penalties after the original owner’s death. However, non-spouse beneficiaries must begin taking withdrawals and deplete the entire account within ten years. The guidelines may differ somewhat, depending on the type of account and the way the original owner set it up.
Speak With a Knowledgeable Attorney About the Secure Act and Estate Planning
The SECURE Act and SECURE Act 2.0 brought major reforms and provisions to address long-standing retirement planning issues. The legislation also provides several perks for small business owners and younger adults to begin saving with the ability to withdraw from accounts without penalties for unforeseen emergencies. While some of the recent changes may not benefit beneficiaries of retirement accounts, the legislation presents a variety of advantages and incentives for businesses and individuals to encourage retirement planning and savings. Meet with an experienced lawyer to learn more about the SECURE Act and estate planning by calling (480) 320-2310.
© 2023 Matthew W. Harrison and Harrison Law, PLLC All Rights Reserved
This website and article have been prepared by Harrison Law, PLLC for informational purposes only and does not, and is not intended to, constitute legal or financial advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.
