How New 2024 Retirement Rules Can Help Employees Save
For many workers, saving money for retirement can be a challenge. But for those who don’t have any emergency savings, work part-time, or have student loans to repay, this can be a near impossible challenge. The Secure Act of 2019 implemented a lot of changes to the law governing the way Americans saved and withdrew money from their retirement plans. SECURE Act 2.0 is a continuation of the law, and many provisions take place starting in 2024.
I’m Darren Leader, a partner at Simmons Capital Group. Today, we’ll discuss four new provisions of the SECURE Act 2.0 legislation and what they may mean for your savings strategy in 2024.
Student loan debt totals more than $1.7 trillion and is held by about 43.5 million Americans. These loans can put a crimp on how much someone can save for retirement. Starting next year, Secure 2.0 will let employers offer matching contributions to employees who are making student loan payments and put that match into the employee’s 401(k) account. Under the new law, if you are paying 5% of your salary toward student loans, and nothing toward retirement, your employer can still opt to put that 5% in your 401K. That way, you can accrue retirement savings even if you aren’t able to make significant contributions yourself.
The share of workers who have tapped into retirement savings is on the rise. Hardship withdrawals increased by 24% in 2022, hitting an all-time high. Effective in 2024, retirement plans may allow participants to access up to $1,000 of their account balance without penalty for hardships. Participants will only need to self-certify their need for the emergency distribution to request it.
Employees may choose to pay the money back within three years through regular paycheck contributions, and they would get a tax deduction for those contributions just as they do for regular 401(k) contributions. But to take a second withdrawal of $1,000 in another year, the first amount withdrawn must have been paid back in full. hardship withdrawals should only be used after all other options are exhausted, and are not a good replacement for an emergency fund.
Also effective in 2024, plans may allow for participants to contribute up to $2,500 in post-tax deferrals to an emergency savings account which will be treated like Roth contributions. The employer would cap how much may go into the fund, but under the law it can’t exceed $2,500. Since your contributions to the emergency fund would be subject to income tax, you would be funding it with after-tax money.
The provision that employers must implement because of both Secure Act and Secure Act 2.0 pertains to long-term part-time workers and their eligibility to participate in a company’s 401(k) plan. An employee who becomes eligible to participate under the part time eligibility rules is credited with a year of vesting for each 12-month period where they complete 500 hours of service. Thus, more part timers will be eligible under the latest rule. Note that this provision won’t take effect until after December 31, 2024. That means in 2025, any part-timer who has logged 500 years annually in 2023 and 2024 would be eligible to start saving in their employer’s 401(k) and would be eligible for the employer match, when they previously may have been excluded.
Many of the opportunities in the SECURE Act 2.0 are optional for the employer and may not be offered in your specific plans. Although these provisions impact plans in 2023, the expected date of the legislative amendment will be due at the end of 2025, allowing ample time for careful consideration. While SECURE Act 2.0 provides increased opportunities to save for retirement, everyone's financial situation is different. If you would like to discuss your personal savings plan, call us at 518-406-5624 or visit our website at www.simmonscapitalgroup.com.