Hi, it’s Hilary Hendershott, and I’m sharing with you just a few of the provisions of the newly signed SECURE Act 2.0 that could benefit your financial future.
Buried in the nearly 400 pages of legislative dross are a few key nuggets that may be beneficial to your financial future.
01. Higher Catch-Up Contributions:
To accelerate retirement saving as you approach retirement age, the SECURE 2.0 Act has increased annual ‘catch-up’ contribution allowances for many retirement accounts (i.e., extra amounts allowed beyond the standard contribution limits).
However, in many situations, the updates also require high-wage-earners ($145,000/year or higher) to direct their catch-up contributions to after-tax Roth accounts.
02. An Expanded Contribution Window for Sole Proprietors:
If you’re a sole proprietor, you will be able to establish a Solo 401(k) through the current year’s Federal income tax filing date and still fund it with prior-year contributions (previously you had to do this by December 31st of the prior year).
03. Finding Former Retirement Savings Plans:
It can be hard for company plan sponsors to keep in touch with former employees—and vice-versa. Weirdly, I myself actually lost a 401(k) I had saved in at a corporate job I left in my early 20s. To cure this, SECURE 2.0 created a national “lost and found” database to help you search for plan administrator contact information for former employees’ plans, in case you’ve left any retirement savings behind.
04. Cheaper Retirement Plans for Small Businesses:
Small businesses can take retirement plan start-up credits to offset up to 100% of their plan start-up costs (versus a prior 50% cap). Also, businesses with no retirement plan can apply for start-up credits if they join a Multiple Employer Plan (MEP)—and this one applies retroactively to 2020.
05. Student Loan Payments Count as Elective Deferrals (!!):
If you’re paying off student debt and trying to save for retirement, your student loan payments will qualify as elective deferrals in your company plan.
Whether you contribute to your company retirement plan or you make student loan payments, your employer can use either to make matching contributions to your retirement account.
06. Transferring 529 Plan Assets to a Roth IRA:
This one is subject to a number of qualifying hurdles, but SECURE 2.0 establishes a path for families to transfer up to $35,000 of untapped 529 college saving plan assets into the beneficiary’s Roth IRA.
With proper planning, this may help you ‘seed’ your children’s or grandchildren’s retirement savings with your unspent college savings.
07. Extended RMD Dates:
The original SECURE Act postponed when you must start taking taxable RMDs from your retirement account—from 70 ½ to 72.
The SECURE 2.0 Act extends that deadline further. If you were born between 1951–1959, you can now wait until age 73. If you were born after that, it’s age 75.
08. Reduced RMD Penalties:
If you fail to take an RMD, the penalty is reduced from a whopping 50% of the distribution to a slightly more palatable 25%. Also, the penalty may be further reduced to 10% if you fix the error within a prescribed correction window.
Again, these are only a few of the highlights tucked away in this massive new legislation update. And for the sake of space, we haven’t included all of the details and requirements to qualify, so additional research should be completed before implementing.
The financial world is complex, and can be tricky to navigate. Applying strategies like the ones I’ve mentioned today can have a compounding effect on your financial life over the years.
If you’re interested in receiving personalized financial counsel and investment advice, please click here to schedule an initial call with us today.
Come what may in the years ahead, we look forward to serving as your guide through the ever-evolving field of retirement planning.
To your prosperity,
Hilary Hendershott
All investing involves risk, including the potential loss of principal. There is no guarantee that any investment plan or strategy will be successful. Advisory services provided by Hendershott Wealth Management, LLC (“HWM”), an investment advisor registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
All written content in this article is for information purposes only. Opinions expressed herein are solely those of HWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.
