Implications of Secure Act 2.0 and Learn How to Better Strategize Your Post-Retirement Life

Toward the end of 2022, President Joe Biden signed the Secure Act 2.0 into law and brought significant changes to the legislation covering retirement, particularly on the retirees’ contribution and access to the funds. Secure Act 2.0 effectively amended the 2019 Secure Act.

Below are some of the salient provisions of Secure Act 2.0:

• Expanded coverage: Most companies are mandated to automatically enroll eligible workers into the retirement plan at 3% and 10% starting in 2025. However, you are exempted if your business has existed for less than three years or employs ten or fewer workers.
• Required Minimum Distribution Age: The age requirement bumped to 73 from the previous 72 beginning in 2023. The RMD will again increase to 75 in 2025. Meanwhile, the penalty was cut in half from 50% to 25%, or up to 10%. Meanwhile, the RMD will be eliminated from your Roth 401(K) accounts beginning in 2024. The change means you have ample time to grow your retirement plan.
• 529 to IRA — If your child is on a scholarship or attends a more affordable school, you can realign the extra money from the student loans into a Roth IRA (individual retirement account). The 529 to Roth IRA transfers will be allowed after 15 years (Beginning in 2024, up to $35,000). To avoid taxes, the distributions must be made after you breach the 59½ age limit or meet the 5-year holding requirement.
• SIMPLE AND SEP: The Savings Incentive Match Plan for Employees and Simplified Employee Pension are enforced beginning in 2023. So, employers can use the Roth contributions for either SIMPLE or SEP.
• Part-Time Employees: If you are not a tenured employee but have worked for a company for a long time, you are eligible to avail yourself of the benefits of Secure Act 2.0. Under the new rule, long-time part-time workers can start contributing to their retirement plan in two years rather than the previous three years. 
• Catch-up Contributions: — If your retirement is just around the corner, you can accelerate payments up to $7,500 more on your 401(k). Starting in 2025, you can increase this contribution to an extra $10,000 annually if you fall between 60 and 63 years old.
• Saver’s Match: Starting in 2027, employees with annual earnings up to $71,000 can get up to $2,000 from the federal matching contribution. The Saver’s Match replaces Saver’s Credit.  
• Surviving Spouse: Starting in January 2024, the surviving spouse may defer receiving the benefits until the applicable age of the deceased, or either 73 or 75 years old.

Minnesota Secure Choice

However, Minnesota took one step further by passing House File 782, which created the Minnesota Secure Choice, a retirement program covering private workers without protection once they leave the workplace for good.

Minnesota joined Illinois, California, Oregon, and Colorado (along with other states) that legislated state-run retirement programs for their constituents.

The following are among the salient points of the Minnesota Secure Choice: 

• Businesses employing five or more workers with no existing plan offer may join Secure Choice.
• Employees may opt to contribute pre-tax or post-tax.
• Secure Choice is not mandatory, so employees may choose not to participate.
• Employees may also adjust their contribution rate.
• Use their accounts to pick from the number of state-offered investment funds.
• Defer receiving their retirement later or choose to get it in a lump sum.

When Do You Hire A Financial Advisor for Your Retirement Plan?

You’ve worked hard for practically all your life for the end goal: securing enough financial freedom to pursue your hobbies and passions.

Unfortunately, only 58% of Baby Boomers (ages 56-64) have a retirement plan.

Gen Xers (ages 40-55) are not faring much better since only 56.1% are prepared after leaving the workplace. Luckily, they still have time to catch up.

So, if you are within ten years of being retired, you must hire a financial advisor to prepare you better.

Here are some of the benefits of securing the services of a financial advisor on your way to retirement:

1. Retirement Income Planning: A financial advisor can analyze your income sources, such as pensions, Social Security benefits, and investment portfolios, and help create a strategy to maximize your retirement income. They can recommend appropriate investment vehicles and asset allocation strategies based on your risk tolerance and time horizon. Suppose you have employer-sponsored retirement accounts like 401(k) or 403(b). In that case, a financial advisor can guide you on contribution amounts and investment options within the plan and help you make informed decisions regarding rollovers or distributions.

2. Investment Management: An advisor can help you construct and manage a diversified investment portfolio tailored to your retirement goals. They can guide asset allocation, select suitable investment options, and regularly review and rebalance your portfolio to ensure it remains aligned with your objectives.

3. Risk Assessment and Mitigation: A financial advisor can weigh your risk tolerance concerning your retirement savings plan. They can recommend strategies to mitigate those risks, such as diversification, insurance coverage, and contingency planning.

4. Regular Monitoring and Adjustments: As market conditions, tax laws, and personal circumstances change, a financial advisor can monitor your retirement savings plan and make necessary adjustments to keep you on track. They can provide ongoing guidance and support to align your retirement plan with your evolving needs.

5. Goal Setting: A financial advisor can help you define your retirement goals based on your desired lifestyle, expected expenses, and retirement age. The expert can appraise your current financial situation and develop a plan to achieve those goals.

6. Tax Planning: A skilled financial advisor can help you optimize your retirement savings from a tax perspective. They can advise on tax-efficient investment strategies, identify potential tax deductions and credits, and suggest appropriate retirement accounts like IRAs or 401(k)s to minimize tax liabilities.

For instance, most people probably don’t know that Minnesota distinguishes between retirement income and pension income. The former is non-taxable, while the latter is taxable. So, don’t be surprised if you receive your pension and find some deductions.

By hiring a financial advisor, you can exploit all the advantages of your 401(k), 403(b), or 457(b) for your benefit. For instance, while the annuities hold some tax benefits, the earnings growth from your retirement savings may incur taxes once you withdraw them.

Remember, working with a reputable and qualified financial advisor who acts in your best interest is essential. Look for advisors with relevant credentials, such as Equitable, to prioritize your financial well-being.

Carefree Bookkeeping works with a number of local expert financial advisors and tax strategists that can help you take your business to another level. Call for a referral today.