Now that the $1.7 billion budget plan has been approved by the United States Senate and the House of Representatives, only US President Joe Biden’s signature remains, For the approval of a bill called “Secure 2.0” and it will affect the way in which retirement is managed in the country,
For those who don’t know, The SECURE 2.0 Act is a set of regulations aimed at continuing to reform the American retirement system. Implemented in the SAFE law of 2019.
In SoloDinero we explain Five Ways This Law Will Change Your American Retirement
1- Automatic enrollment for 401(k) retirement plans
401(k) retirement plans are financial savings vehicles that typically are offered by employers to contribute to their employees’ retirement plans, These types of accounts give workers the power to choose their own investment plans to grow their savings.
Under the SAFE 2.0 law, employers will be required to enroll their employees in 401(k) plansMaintaining a subscription rate of at least 3% but not more than 10%.
In this case, businesses with 10 employees or less and newly established companies (less than three years old) will be kept out of this mandate.
2- Improving access to savings for emergencies
One of the provisions carried over by the SECURE 2.0 law is allowing employees to withdraw up to $1,000 from their retirement savings accounts for emergency expenses.Without meaning that they will have to pay a tax penalty of 10% for early withdrawal.
Currently, withdrawals made before age 59 1/2 may be subject to penalties. Some companies also allow workers to access their retirement funds for emergencies if they agree to deductions from their nominal pay.
3- The age of onset of RMD will increase
According to the Internal Revenue Service (IRS), Required Minimum Distribution (or RMD) is the minimum amount that retirement plan users must withdraw annually starting at a specified age,
Presently she is 72 years old. With the SECURE 2.0 law, this age will increase to 73 years by 2023 and 75 years in 2033,
Additionally, the penalty for not taking RMD will be reduced to 25% and in some cases even 10%, which is much lower than the present penalty of 50%.
4- Contribution of old depositors will increase
People age 50 and older typically have higher contribution limits for retirement savings accounts to help them “catch up.”
Although the contribution limits for 401(k) and IRA plans were raised this year, With the SECURE 2.0 law, contributions from people between the ages of 60 and 63 will get a boost,
Also, this amount will be indexed for inflation in order to “catch up”.
5- Chances of reaching retirement plan of part-time employees will increase
The Secure 2.0 law would reduce the amount of time part-time employees must work to be eligible for their company’s 401(k) plan.Which will help them optimize their retirement savings.
In addition, the Secure 2.0 law will include incentives for small businesses to set up retirement savings plans for their employees.
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