What The SECURE Act 2.0 Means For Retirement Savings

What The SECURE Act 2.0 Means For Retirement Savings

One of the most noteworthy retirement savings legislation in years, the SECURE Act 2.0, is now law. The SECURE Act is one of the most significant changes to retirement savings plans since Congress allowed for the automatic enrollment of employees and the addition of Target Date funds to retirement plans in 2006.

 

The legislation provides changes that aim to help strengthen the retirement system and financial retirement readiness for Americans. Here’s how the Secure Act 2.0 will help Americans plan save for retirement:

  • Offer more investment options to plan participants
  • Access to financial education
  • Change the retirement plan’s required minimum distribution (RMD) to age 73 in 2023 and 75 in 2033.
  • In 2024, RMDs will no longer be required from Roth IRA accounts in employer retirement plans.
  • Mandated employee retirement plan participation for both full-time and part-time employees.
  • Automatic enrollment and portability. The legislation requires businesses adopting new 401(k) and 403(b) plans to automatically enroll eligible employees, starting at a contribution rate of at least 3%, starting in 2025.

What Are The Main Features Of The SECURE Act?

Increasing the RMD (Required Minimum Distribution) age to 73 in 2023 and 75 in 2033.

Section 529 education savings account owners will be allowed to use retirement accounts to cover the costs of homeschooling, qualified student loan repayments of up to $10,000 (siblings included), private schools, and apprenticeships for the account beneficiary. The catch is a 529 plan must be in place for the retirement account to be used for education with no tax or early withdrawal penalty.

New 10-Year Rule

Retirement accounts must distribute all benefits within ten years after a retirement plan participant dies or an IRA owner dies, except when the beneficiary is a spouse, disabled or chronically ill, a child who hasn’t reached the age of majority, or a beneficiary not more than ten years younger than the deceased owner.

Employees Can Make Contributions Until Their RMD Age

Employees can make contributions until their RMD age to their retirement accounts. The Act would help workers who plan to continue to work into their 70s save additional money for retirement.

401(K) Plans Will Offer Annuities

401(k) plans will offer annuities as an investment choice to help workers help guarantee a portion of their retirement savings from market risk. Annuities are backed by the insurance company’s claims-paying ability and are an insurance product.

Matching Roth IRA Accounts

Employers can provide employees the option of receiving vested matching contributions to Roth accounts. Previously, matching in employer-sponsored plans was made on a pre-tax basis. Contributions to a Roth retirement plan are made after-tax, after which earnings can grow tax-free. Unlike Roth IRAs, RMDs from an employer-sponsored plan are required for Roth accounts until the tax year 2024.

Parents Would Be Allowed To Withdraw $5000 Penalty-Free

Parents would be allowed to withdraw $5000 penalty-free from a 401(k) to pay for expenses related to the birth of a child or a new child through adoption. Under the new SECURE Act 2.0.

Emergency Savings

Defined contribution retirement plans could add an emergency savings account that is a designated Roth account eligible to accept participant contributions for non-highly compensated employees starting in 2024. Contributions would be limited to $2,500 annually (or lower, as set by the employer), and the first four withdrawals in a year would be tax and penalty-free.

Part-time workers working 500 or more hours per year for at least three consecutive years would be allowed to participate in their company’s retirement plan.

Sources: Fidelity,Kiplinger

The SECURE Act aims to help Americans save more for retirement through their employer’s savings plan. Your retirement savings plan combined with strategies for your situation may help make the difference between having financial security throughout retirement, and not. Contact our office today to schedule a retirement savings and financial plan review.

SWG 2689191-0123d The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This brochure is designed to provide general information on the subjects covered.  Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid penalties or to promote, market, or recommend any tax plan or arrangement.  The information is not endorsed or approved by other Government Agency. You are encouraged to consult your personal tax advisor or attorney.  

When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.

In addition, M3 Wealth specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!

5 Signs That Signal Interest Rates May Rise

In 2022 The Fed raised interest rates seven times, with the possibility of raising interest rates again in 2023 as they pursue cooling inflation. December 2022’s inflation rate was 6.5%, with the Fed Funds rate increasing to 4.4%, the rate banks borrow from The Fed.

Consumers borrow from banks at a marked-up rate, generally 2% or more, depending on the borrower’s creditworthiness. While a potential interest rate may occur or plateau, raising rates can take a toll on consumers. Here’s what to watch for that may signal an interest rate increase is on the horizon:

Mortgage Rates Start To Increase

The 30-year fixed mortgage interest rate is based on the long-term outlook for interest rates. When rates increase, prospective buyers will see their costs rise. Homeowners with fixed-rate mortgages will be spared, but those with adjustable-rate mortgages may want to consider locking in their loan’s interest rate.

Credit Card Rates Rise

All credit cards have adjustable rates and when interest rates rise, so do credit card interest rates. There is no federal law that limits the interest rate that a credit card company can charge. Therefore, consumers carrying balances may want to initiate a plan to pay off their debt or look for zero-interest rate balance transfer offers and transfer their debt. But read the fine print, as the offer may charge back interest if the balance isn’t paid in full by the offer’s balance payoff deadline.

Bond Markets Fall

Bond markets tend to decline as interest rates rise. In May 2022, Fed Chair Jerome Powell announced that the central bank would start to reduce its $9 trillion in Treasury bonds and mortgage-backed securities to reduce market liquidity further. Investors using bond strategies in their portfolio may want to monitor their portfolio and adjust holdings if appropriate as they continue to watch interest rates throughout 2023.

Personal Loan Rates Increase

Personal loan rates may increase as the Fed Funds rate rises as banks borrow at a higher rate and pass that rate along with their markup to consumers. It will become more expensive to finance a car, college education, or consolidate debt. Home equity loan rates also increase as interest rates rise.

Bank Deposit Product Rates Increase

Money market accounts, savings and checking accounts, and CD rates rise. Banks often raise interest rates on these products to attract new customers or bring in more money. Consumers with lower-rate CDs or money market accounts may want to consider laddering- staging CDs to come due at different times to help accumulate more interest during rising rates versus being locked in at a lower rate. Also, determine if cashing out a CD, paying the penalty, and reinvesting in a new CD is appropriate for their situation.

While there is uncertainty if and when interest rates will go up, there are things you can do to help lessen the effect, such as:

  • Paying off debt
  • Refinancing debt now versus waiting
  • Add inflation risk products such as fixed-indexed annuities to your portfolio
  • Consider strategies that may provide accumulation based on a guaranteed rate and an index

Contact our office for a portfolio review today if you have concerns about rising interest rates and your portfolio.

SWG 2689191-0123c The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.

In addition, M3 Wealth specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!

The 2023 U.S. Economy- A Guessing Game

Throughout 2022, the U.S. economy experienced high inflation, economic expansion and contraction, low unemployment, and narrowly avoided a recession. But even economists with insight have mixed feelings about what the 2023 U.S. economy may be like- it’s a guessing game this early in the New Year.

The Federal Reserve has been working to slow the economy by raising interest rates seven times during 2022 to help cool down inflation. However, future interest rate increases in 2023 may catalyze a recession. Here’s what to watch over the next few months that may impact how the U.S. economy fares this year:

A Potential Rise In Unemployment

Layoffs at employers like Amazon, Salesforce, and Meta (Facebook), are due to numerous factors such as over-hiring, personal and business spending declining, and the current economy. According to new research from Goldman Sachs, the U.S. Labor Department’s job openings report may need to capture the recent increase in layoffs. Interestingly, Goldman Sachs has also recently laid off workers.

Home Sales

Home sales declined 35% to 2020 levels before the housing market uptick during COVID-19. The rapidly soaring home prices have now leveled, a trend that economists anticipate will continue through 2023 and may resort back to a buyers’ market once again.

New Construction

Single-home construction declined every month during 2022, with building permits at a two-and-a-half-year low. Spring 2023’s Q2 home start data will indicate how new home construction may impact the economy as seasonal building slow-down once again picks up.

The Stock Market

The S&P lost 20% of its value in 2022, but the New Year’s optimism provided a short-lived rally in the first week of 2023. Closely watch for signs that The Fed may increase the Fed Funds rate creating a ripple effect in stock market performance.

Manufacturing

Manufacturing is declining as Americans spend less on items such as new cars, furniture, and appliances previously in demand early on during the pandemic, reflected in the Gross Domestic Product (GDP) score. The GDP measures the health of the U.S. economy quarterly.

While we have yet to determine how the U.S. economy will fare in 2023, right now is a great time to review your portfolio’s allocations and take appropriate actions for your situation. Contact our office today for a consultative meeting.

SWG 2689191-0123b The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.

In addition, M3 Wealth specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!

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