SECURE Act 2.0 offers powerful new ways to save more for retirement

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Here's what you need to know about the recently passed law that could revolutionize retirement planning for people of all ages
If you're looking for ways to improve your retirement readiness (and who isn't?), there's a sweeping bill to help you start earlier, save longer and make up for lost time. All told, the SECURE 2.0 Act of 2022 (PDF), signed into law last December, contains about 90 provisions, many of which make major changes to existing retirement savings rules.
"A quarter of working Americans have nothing saved for retirement.Footnote 1 The new regulations are designed to encourage increased plan participation and savings," notes Mitchell Drossman, head of National Wealth Strategies in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank.
"A quarter of working Americans have nothing saved for retirement.Footnote 1 The new regulations are designed to encourage increased plan participation and savings."
— Mitchell Drossman,
head of National Wealth Strategies,
Chief Investment Office,
Merrill and Bank of America Private Bank
"While some changes happen immediately, others take effect over the next several years," says Debra Greenberg, director, Personal Retirement Product Management at Bank of America. "Still, it's a good idea to evaluate whether you're saving enough for retirement and speak with your tax specialist about how you might be able to take advantage of the new law's provisions." Here are some highlights to consider, depending on your stage of life or situation:

Just starting out?

Beginning in 2025, you may find yourself automatically enrolled in a company retirement plan.

To help boost retirement savings, SECURE 2.0 requires companies that established retirement plans after the enactment of the SECURE 2.0 Act on December 29, 2022 to begin automatically enrolling eligible employees in 2025. While you may choose to opt out, "automatic enrollment drives home the importance of saving early and often," Greenberg says. "Even a small difference in the amount you save early in your career can make a big difference over time." The chart below may help you set a long-term goal for yourself.

How much should you be saving for retirement?

With findings based on Bank of America's Financial Wellness Tracker — a proprietary assessment that calculates a financial wellness score based on where an employee is today (password required) — consider using the following savings multiples as guidance for replacing your income in retirement:
Graphic shows how much the best savers and investors have set aside as a proportion of their current salary. For those ages 18-25, the amount is 0.1 times their current salary; for those ages 26-30, the amount is 0.7 times their current salary; for those ages 31-35, the amount is 1.4 times their current salary; for those ages 36-40, the amount is 2.2 times their current salary; for those ages 41-45, the amount is 3.1 times their current salary; for those ages 46-50, the amount is 4.2 times their current salary; for those ages 51-55, the amount is 5.4 times their current salary; for those ages 56-60, the amount is 6.8 times their current salary; for those ages 61-64, the amount is 8.2 times their current salary.
Source: Bank of America, "Financial Wellness: 2020 Retirement savings guidance," 2020. Note: Calculations are based on obtaining 38% of income replacement from retirement savings (pre-tax) for middle income households of $40,000 to $100,000 annually.

Paying off student loans? You could get help saving for retirement.

"Everyone urges you to save early, but that's hard when you're repaying a sizable student loan," Greenberg says. Starting in 2024, employers may offer matching contributions to retirement plans based on an employee's qualified student loan repayments (up to the amount an employee would be allowed to contribute on their own). While the match isn't required, companies might find that this benefit helps attract promising candidates, she adds.

Got leftover 529 education savings funds? You may be able to jumpstart your beneficiary's retirement savings.

While college costs keep rising, "some students receive scholarships or grants that could leave unspent money in a 529 Education Savings Account started for them," Greenberg notes. As of 2024, that money may be rolled directly into a Roth IRA for the beneficiary of the 529 account without Federal income tax or the usual 10% penalty for non-education withdrawals. Among the restrictions, the 529 must have been open for 15 years and the money to be rolled over must not have been contributed within five years of the rollover.
"Even a small difference in the amount you save can make a big difference over time."
— Debra Greenberg, director,
Personal Retirement Product Management,
Bank of America

Nearing (or in) retirement?

Larger "catch-up" contributions can help you make up for lost time.

Starting in 2025, "catch-up" provisions for savers aged 50 and over will offer an additional boost for those aged 60 through 63: they'll be able to contribute $10,000 or 150% of the standard catch-up amount (whichever is greater) to 401(k) and 403 (b) plans. For SIMPLE IRAs and SIMPLE 401(k) plans, the limits are $5,000 or 150% of the annual catch-up contribution limit. "After 2025, these increased catch-up amounts will be indexed annually for inflation," Greenberg says. One caveat: Employees earning more than $145,000 will have to make any contributions to a Roth plan, using post-tax rather than pre-tax dollars. Check to make sure that your plan permits catch-up contributions.

You can keep money invested longer.

Anyone turning 72 after January 1, 2023, can wait until age 73 before taking required minimum distributions (RMDs) from their retirement plans and IRAs. That's up from the prior year's RMD age of 72 and 70½ in 2019. By 2033, the age will rise to 75. "The extra time allows you the opportunity to keep more of your savings invested," notes Greenberg. Another plus: The bill reduces additional taxes for failing to take RMDs on time (to 25% of the amount of the missed distributions, down from 50%) and fixes an RMD anomaly for Roth investors. "While Roth IRAs typically don't require RMDs, Roth 401(k) and 403(b) plans do. That requirement ends starting in 2024," Greenberg notes.

Consider giving more to charity.

Even as the RMD age increases, individuals can still make qualified charitable distributions (QCD) of up to $100,000 per year, starting at age 70½. To further encourage giving, the bill calls for adjusting that amount annually for inflation, with the first adjustment coming in 2024. SECURE 2.0 also expands existing QCD rules by enabling individuals to make one-time distributions of up to $50,000 from their IRAs to split-interest trusts such as Charitable Remainder Trusts and Charitable Gift Annuities, starting in 2023.

Own a small business that doesn't offer a retirement plan?

Here's incentive to start one.

"Starting in 2023, companies with 50 or fewer employees can earn a tax credit worth 100% of administration costs, or up to $5,000 per year," Greenberg says. "That could mean up to $15,000 in potential savings — a big number for a small employer." Previously, those businesses were eligible for the same 50% credit available to companies with up to 100 employees.
These are just a few of the many SECURE 2.0 changes affecting retirement savings, Greenberg stresses. For more details, read "Understanding the SECURE Act of 2022 (PDF)." Then try Merrill's Personal Retirement Calculator to find out if you're on track for retirement. And be sure to consult with your tax professional before making any decisions.

Next steps

Footnote 1 Federal Reserve, "Economic Well-Being of U.S. Households," May 2022.

IMPORTANT DISCLOSURES

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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