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 1. Individuals
 2. Build Your Knowledge
 3. What is the SECURE 2.0 Act and how does it affect your money?




WHAT IS THE SECURE 2.0 ACT AND HOW DOES IT AFFECT YOUR MONEY?

Rarely does legislation get a follow-up—much less one that benefits whole swaths
of Americans. But that’s the case with the SECURE 2.0 Act of 2022, passed by
Congress on December 23, 2022, and signed by President Joe Biden December 29.


THE BACKGROUND ON SECURE 2.0

SECURE 2.0 is the successor to the Setting Every Community Up for Retirement
Enhancement Act—sometimes referred to as SECURE 1.0--which was enacted in 2019.
That law focused on widening access to tax—advantaged accounts, among other
impacts to retirement planning.

Almost as soon as SECURE 1.0 was passed, Congress began work on SECURE 2.0—but
it’s been stuck in legislative limbo: The House passed a version in March 2022,
while the Senate tried to align its own changes for the rest of the year. They
finally came to a consensus in 2022 with just days to spare.


HOW SECURE 2.0 AFFECTS YOU AND YOUR RETIREMENT SAVINGS

By including provisions for so many different people, SECURE 2.0 acknowledges
the obvious: Retirement savings affect everyone—young and old, people with plans
and those without. “SECURE 2.0 does have a number of practical ways for more
Americans to build retirement savings,” says Heather Winston, director of
individual solutions for Principal®. Here’s a few to understand.


CATCH-UP CONTRIBUTIONS

People aged 60 to 63 can already make a catch-up contribution to their
retirement accounts, but SECURE 2.0 ups the total by quite a lot: $10,000 to a
401(k) or 403(b), or $5,000 to an IRA in 2025. (Existing catch-up contributions
remain the same for those age 50 to 59.) In addition, starting in 2024,
individuals above a minimum income level (currently $145,000) will be required
to make those catch-up contributions as post-tax, or Roth IRA, contributions.
But that also means when that money is withdrawn to use in retirement, it’s not
taxed.


REQUIRED MINIMUM DISTRIBUTIONS

SECURE 1.0 boosted the required minimum distribution, or RMD, age to 72; SECURE
2.0 ups it again—first to 73, then to 75, depending on your birth date. The new
legislation also reduces the penalty, currently 50%, for failing to take an RMD
down to 25%. “These changes could be welcome news for retirees who may find that
their RMD could put them in a higher tax bracket than they initially planned
for,” Winston says.


AUTO-ENROLLMENT IN EMPLOYER-SPONSORED RETIREMENT PLANS

SECURE 2.0 has a number of features addressing automatic enrollment and
increased deferrals into employer-sponsored retirement plans. Beginning in 2025,
most employers starting a new plan must auto enroll everyone at a rate of
between 3% to 10%. Then, the employer must increase that enrollment percentage
each year until employees reach at least a 10% but not more than a 15%
contribution rate. (Employees can choose to opt out.)

This rule does not apply to companies with 10 or fewer employees, those that
have been in business for less than three years or that have existing plans,
SIMPLE plans, church plans, or governmental plans.


EMERGENCY SAVINGS

One out of four people lack emergency savings,1 and a unique provision of SECURE
2.0 attempts to remedy that. It allows employers to offer emergency savings
accounts alongside employer-sponsored retirement plans. Those emergency savings
would be capped at $2,500 (employers may set lower limits and may limit
withdrawals to one per month), with extra funds going to an employer-sponsored
retirement account. Employers who provide matching contributions for
employer-sponsored retirement plans are now also required to match employee
emergency savings accounts at the same rate.


529 ROLLOVERS TO ROTH IRAS

If you have a 529 in your name but don’t need some of those savings to pay
education-related expenses, SECURE 2.0 allows you to roll over up to a lifetime
limit of $35,000 to a Roth IRA. The 529 must be at least 15 years old, and
contribution limits would still apply.


STUDENT LOAN DEBT PAYMENTS

Employers that choose to use the student loan provision of SECURE 2.0 may find
themselves with a key recruit-retain advantage: They can make retirement plan
matching contributions on behalf of employees who are paying off student loans
The thought is that those individuals may not be able to afford to save for
retirement and are missing out on key savings years (and time in the market).


PART-TIME WORK AND RETIREMENT SAVINGS

Some savings plans aren’t available to those who work part time, but SECURE 2.0
makes anyone who works between 500 and 999 hours each year for two consecutive
years eligible to enroll.


MORE SECURE 2.0 PROVISIONS

It’s a long list—and there’s even more that may affect you, including additional
options for minimum rollovers, donations to charities from retirement plans, and
a national clearinghouse for those who may have lost track of retirement savings
they once had. For insights, contact your financial professional or check out
more information on SECURE 2.0.


WHAT'S NEXT?

Which provision of SECURE 2.0 may make an impact on your retirement savings this
year? Log in to your Principal account to assess your savings rate. Don’t have
an employer-sponsored retirement account? We can help you set up your own
retirement savings.

--------------------------------------------------------------------------------


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Investment advisory products offered through Principal Advised Services, LLC.
Principal Advised Services is a member of the Principal Financial Group®, Des
Moines, IA 50392.

This content is intended to be educational in nature and is not intended to be
taken as a recommendation.

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