Secure 2.0 Is Turning 1, and There Are More Changes to Come

The legislation known as the Secure 2.0 Act — short for the Setting Every Community Up for Retirement Enhancement 2.0 Act — may have become law a year ago, but that doesn’t mean that clients are tired of hearing about it, or that they know all they should know about the landmark retirement reform law.

In fact, to Terri Fiedler, president of retirement services at Corebridge Financial, the Secure 2.0 Act’s Dec. 29 passage anniversary creates an opportunity for deeper planning discussions with existing clients and prospects alike.

Experts tell ThinkAdvisor it is also important for advisors themselves to understand how the Secure 2.0 Act, alongside its namesake predecessor from 2019, are setting up underserved populations to grow their wealth and become the next generation of retail wealth management clients. For example, the laws’ provisions to expand access to workplace retirement savings benefits should help many more Americans get and stay invested for the long term.

All in all, Fiedler argues, early 2024 should be a great time for advisors to spark meaningful planning conversations with clients while also asking bigger questions about their own approach to retirement and wealth management.

Emergency Savings and Secure 2.0

As Fiedler notes, in 2024, a number of new provisions of the Secure 2.0 Act will go into effect, including two of the optional provisions she sees as having potential to help with one of the biggest retirement-saving challenges — “balancing that longer-term need with more immediate financial priorities.”

First, the forthcoming Section 115 of the Secure 2.0 legislation enables individuals to take up to $1,000 per year in penalty-free withdrawals from their retirement savings for emergency expenses.

“One distribution is allowed per year, with the option to repay it within three years [for income tax mitigation purposes],” Fiedler observes.

One important caveat that advisors should highlight, she says, is that no further emergency distributions will be allowed within the three-year repayment period, unless repayment occurs.

“This provision can help individuals plan for the unexpected, while at the same time, save for retirement, which Corebridge research tells us are both important,” Fiedler says, pointing to 2022 proprietary survey data showing that some 74% of Americans are concerned about the effect an unexpected expense will have on their future.

“More than half of workers said they would resort to credit cards, borrowing from family or friends or a loan from a financial institution if they had to immediately pay an unexpected expense of $1,000,” Fielder adds. “In that same survey, 76% said that making it easier for people to withdraw even a limited amount of money from their retirement plan to pay for emergencies will help people feel more secure.”

The Student Loan Dilemma

Secondly, Fielder highlights the implementation of Section 110, which is focused on student loans and helps to address another common expense that challenges retirement savings goals.

“At the core of this provision, employers can match an employee’s qualified student loan payment with a corresponding contribution to that employee’s 401(k), 403(b), SIMPLE IRA or 457(b) plan,” Fielder notes.

In another survey recently fielded by Corebridge, three out of four borrowers said that the resumption of student loan payments would affect their ability to save for retirement, Fielder notes.

“Given these findings and the repayment resumption that occurred in October, we know paying student debt is at the forefront of borrowers’ minds when making financial decisions for 2024,” she says. “Where implemented, Section 110 could support student loan borrowers on their repayment journey, while simultaneously helping them fulfill their retirement savings goals.”

Other Salient Features and Deadlines

As highlighted in a Secure 2.0 provisions guide published on the Corebridge website, the main message for advisors to deliver to clients is that the law aims to improve retirement outcomes by increasing access to retirement plans, growing and preserving savings, and helping Americans manage competing financial priorities so they can achieve long-term financial security.

The law and its predecessor have already had an impact on retirement savers, and they will continue to reshape the retirement planning landscape over the next decade as more  provisions kick in.

For example, the original Secure Act increased the mandatory age for the start of required minimum distributions from 70.5 to 72. With Secure 2.0, the mandatory age increased to 73 effective Jan. 1, and it will increase again in 2033 to age 75.

In addition to those cited above, other key provisions taking effect in 2024 and beyond include the following:

• A substantial increase in catch-up contribution limits for ages 60 to 63. Currently, retirement plan participants 50 and older can contribute an additional $7,500 to their retirement plan. Beginning Jan. 1, 2025, catch-up limits for participants ages 60 to 63 will increase to the greater of $10,000 or 50% more than the regular limit for 2025.
• A new requirement for higher earners to use Roth accounts. Beginning in January, catch-up contributions for workers with compensation higher than $145,000 in 2023, indexed for inflation, must be made into a Roth account.
• An expanded Saver’s Match for retirement plan contributions. For individuals under certain income thresholds, current law provides a 50% tax credit for up to $2,000 in retirement plan and IRA contributions. Effective Jan. 1, 2027, the tax credit will be replaced with a matching contribution from the government into the person’s retirement account. This means if a worker makes a total annual contribution of $1,000, the government will contribute $500. If the participant contributes $2,000 or more annually, the matching contribution will be $1,000.
• The creation of employer-administered emergency savings accounts. Beginning in January, employers can automatically enroll employees earning below a state wage limit into a workplace savings account at a contribution amount up to 3% of their gross pay, until the account reaches $2,500. Contributions are treated as Roth elective deferrals, which employers can match in the retirement plan, up to the cap.

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