By Sonya Sellmeyer, Consumer Advocacy Officer for the Iowa Insurance Division
The U.S. is facing a retirement security crisis, and Iowa is no exception. According to a 2019 study done by the Iowa Insurance Division, the Association for Financial Counseling and Planning (AFCPE) and other partners, 39 percent of Iowans are planning to live off Social Security in retirement, and 37 percent of Iowans have less than $5,000 saved or invested for retirement.
In 2019 Congress passed the SECURE Act which focused on retirement security. On December 29, 2022, the SECURE Act 2.0 of 2022 was signed into law as part of the Consolidated Appropriations Act. Here are a few of the highlights intended to help employees plan and save for retirement:
- 401(k) and 403(b) plans established after December 31, 2024, will have automatic enrollment for eligible participants, with some exceptions for small businesses, churches, and governmental entities. Employees will be able to opt-out if they wish.
- Beginning in 2025, workers aged 60-63 may be eligible to make a catch-up contribution of $10,000 to their defined contribution plans.
- Annual catch-up limitations on an Individual Retirement Account (IRA) will increase based on inflation for those 50 and up beginning in 2024.
- On January 1, 2023, the age to take Required Minimum Distributions (RMDs) from qualified employer plans and IRAs increased to age 73, and age 75 starting on January 1, 2033. Consult with a tax advisor to determine the right time to take RMDs.
- In 2024, employers may offer matching contributions to retirement accounts for their employees who are repaying student loans, even if the employee is not yet eligible for the retirement plan.
- Beginning in 2024, an emergency savings account may be a part of a retirement plan for eligible employees. This account would be maxed out at $2,500 or 3% of an annual salary, funded through automatic withdrawal with after-tax money, and may be subject to any eligible plan match.
- If you have had a financial loss due to a federally declared disaster after January 26, 2021, at your principal place of residence penalties would be waived for withdrawing money out of a retirement plan before age 59 ½.
- After December 31, 2023, victims of domestic abuse may be able to withdraw small amounts of penalty-free retirement funds.
- Effective immediately, individuals diagnosed with a terminal illness would also have an exception to an early withdrawal tax.
- In 2025, certain part-time employees may be eligible to participate in an employee-sponsored retirement plan after two years of service, instead of the current three years.
- Starting January 1, 2024, unused 529 funds in existence for at least 15 years may be rolled over to a Roth IRA within contribution limits.
Consult a licensed financial professional to discuss any of the SECURE Act 2.0 changes and build a secure retirement to ensure accumulated assets can provide for a dignified retirement.