What is Secure Act 2.0?

by Beth Feinberg-Keenan, former financial aid officer at Northeastern University Secure Act 2.0 was signed into law at the end of 2022 and was designed to improve the ability of the average person to save for retirement and additional life goals. It makes a number of changes to workplace retirement and other savings account rules, many of which could help you and your family balance competing priorities. Learn about a few of Secure 2.0’s key provisions, taking effect in 2024, below. Emergency Savings Things do not always go as planned, and you never know when life will throw you a costly curveball.  When faced with an emergency, individuals without sufficient savings often turn to expensive pay day loans, personal loans, or credit cards.  In addition, workers concerned about having cash on hand for emergencies may hesitate to contribute to their workplace retirement account, where assets are tied up until reaching retirement age. Secure 2.0 allows people to access up to $1,000 once a year from retirement savings for emergency personal or family expenses without paying an early withdrawal penalty. Those withdrawing funds will still have to pay taxes on the withdrawal, but the additional flexibility helps employees access funds when they need them, without having to look for more expensive options, and removes a barrier to retirement savings. Additionally, Secure 2.0 allows workplace savings plan sponsors to add a post-tax emergency savings account to their retirement plan, with an annual limit of $2,500 per person. Employers would have the option of providing matching contributions, and withdrawals would be tax- and penalty-free. Student Loans The vast majority of college graduates now come out of school with student loan debt, so employers looking to recruit and retain young, educated employees are increasingly offering student loan repayment assistance as an employee benefit.  Many of these young employees prioritize student loan repayment over retirement savings, forgoing employer retirement matches, and often fall behind in hitting retirement goals due to the drain student loan payment put on their finances.  Secure 2.0 permit employers to match employee loan payments with matching contributions to their retirement plan.  This provision will allow workers to tackle student loan payments and retirement savings simultaneously, and help borrowers get on track for retirement. College Savings 529 College Investment Plans provide families a tax incentive for saving for college, but also charge a 10% penalty if 529 funds are used for anything other than qualified educational expenses. Some parents, therefore, hesitate to save in a 529, concerned about being penalized if their child does not end up going to college. Secure 2.0 may calm the fears of these hesitant savers, however, by offering the flexibility to roll 529 savings into a Roth IRA for the account beneficiary. This new flexibility comes with boundaries – 529s must have been established for 15 years and rollovers are subject annual IRA contribution limits and an aggregate limit of $35,000 – but it removes a barrier to saving for those wary of penalties, and allows parents to save for their children’s futures without limiting that savings to educational purposes. Conclusion With the implementation of Secure Act 2.0, employees, borrowers, and parents will all find impediments to saving diminished. And since many of us are not just employees or just borrowers or just parents, but might play any or all of these roles, the flexibilities provided by Secure Act 2.0 may help us balance competing financial priorities and prepare for our futures without sacrificing more pressing needs.