The original SECURE Act was signed into law on December 20th, 2019. Its “sequel,” the SECURE 2.0 Act, was similarly enacted at year-end on December 29th, 2022.
Both pieces of legislation seek to reform how Americans prepare for retirement while juggling current spending needs. How, when or will each of us retire? How can government incentives, regulations and safety nets help more people safely do so, or at least not get in the way.
These are questions we have been asking as a nation for decades, across shifting socioeconomic climates. Throughout, a hard truth remains:
Employers and the government play a role in helping you save for and spend in retirement, but much of the preparation ultimately falls on you.
That is America for you. The good news is that you get to call your own shots. The bad news is that you have to. Neither the original SECURE Act nor SECURE 2.0 has fundamentally changed this reality. SECURE 2.0 has, however, added far more motivational carrots than punishing sticks. Its guiding goal is right there in the name: Setting Every Community Up for Retirement Enhancement (SECURE). Following is an overview of its key components.
Note: Implementation for each SECURE 2.0 provision varies from being effective immediately, to ramping up in future years. A few even apply retroactively. Many of its newest programs will not effectively roll out until 2024 or later, giving us time to plan. We have noted with each provision when it is slated to take effect.
First, key provisions include several updates to encourage individual savers:
There also are provisions to help employers offer effective retirement plan programs:
It can be hard to save for your future retirement when current expenses loom large. We advise proceeding with caution before using retirement savings for any other purposes, but SECURE 2.0 does include several new provisions to help families strike a balance.
Tax planning for your retirement savings is also important. To help with that, you can typically choose between two account types as you save for retirement: Traditional IRA or employer-sponsored plans, or Roth versions of the same.
Either way, your retirement savings grow tax-free while they are in your accounts. The main difference is whether you pay income taxes at the beginning or end of the process. For Roth accounts, you typically pay taxes up front, funding the account with after-tax dollars. Traditional retirement accounts are typically funded with pre-tax dollars, and you pay taxes on withdrawals.
That is the intent, anyway. To fill in a few missing links, the SECURE 2.0 Act:
Not surprisingly, the government would prefer you eventually start spending your tax-sheltered retirement savings, or at least pay taxes on the income. That is why there are rules regarding when you must start taking Required Minimum Distributions (RMDs) out of your retirement accounts. That said, both SECURE Acts have relaxed and refined some of those RMD rules.
How else can we help you incorporate SECURE 2.0 Act updates into your personal financial plans? The landscape is filled with rabbit holes down which we did not venture, with caveats and conditions to be explored. And there are a few provisions we didn’t touch on here. As such, before you proceed, we hope you will consult with us or others (such as your accountant or estate planning attorney) to discuss the details specific to you.
Come what may in the years ahead, we look forward to serving as your guide through the ever-evolving field of retirement planning. Please do not hesitate to reach out to us today with your questions or comments.
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Reference Materials and Additional Reading:
This post was prepared and first distributed by Wendy J. Cook.
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