PAID POST by T. Rowe Price — Secure 2.0: Retirement Savings Relief for Every Stage of Life (2024)

AGES 18 TO 42

Generation Z
and Millennials

Paying off student loans, starting a family and career climbing may be top of mind if you are an older member of Gen Z or a millennial. However, SECURE 2.0 offers plenty of benefits to those putting retirement savings on their radar.

• Your unspent college money could go toward retirement. Starting in 2024, if you have leftover money in a 529 college savings plan in your name, you may be able to roll over up to $35,000 into a Roth IRA over the course of your lifetime. To take advantage of this provision, you must have earned income equal to or greater than the amount you wish to convert, the amount you roll over each year can’t exceed annual Roth contribution limits (currently $6,500), and your 529 account must have been open for more than 15 years.
• Your student loan payments could increase your retirement savings. When you make a student loan payment, your employer may elect to make a matching contribution to your retirement account. This provision goes into effect in 2024 and applies to those with a SIMPLE IRA or a 401(k), 403(b) or 457(b) plan.
• Your rainy day savings could increase. Fourteen percent of non-retirees who were laid off in 2021 withdrew money from their retirement accounts.² To help employees avoid dipping into their nest eggs, in 2024, SECURE 2.0 will allow employers to set up emergency savings accounts linked to the retirement accounts of employees who earned less than $150,000 in 2023. Employees would be able to set aside a portion of their salary in the savings accounts, and employers would have the option of making matching contributions into employees’ retirement accounts. The emergency accounts can’t exceed $2,500 or a lesser amount designated by the employer.
• Emergency withdrawals from your retirement account could be less costly. Those who withdraw money from a retirement account before age 59 ^1/2 are typically assessed a 10 percent penalty. However, starting in 2024, you may be able to withdraw up to $1,000 per year penalty-free for emergency expenses. You may still owe federal and state taxes on the withdrawal.

Ages 43 to 58

Generation X

Retirement is fast approaching for Generation X. Sometimes referred to as the sandwich generation, many Gen Xers are caring for both children and aging parents, leaving less money for retirement. If you are a member of Gen X, here is how SECURE 2.0 may offer a financial lifeline.

• You will have more savings options if you are a part-time employee. Some Gen Xers are working part time to juggle family caregiving obligations. Starting in 2025, SECURE 2.0 will require part time workers to be eligible to participate in their employer’s 401(k) plan after two years rather than three.
• You are more likely to have access to a retirement plan. Three out of four small businesses do not offer 401(k) plans³, leaving employees with fewer options for retirement savings. SECURE 2.0 offers small businesses a tax credit for costs associated with setting up a plan, and in 2024, businesses may be able to provide a starter 401(k) plan, which is less costly to operate than a traditional plan.
• You will have more of a choice in how you pay taxes. A traditional 401(k) plan may not be tax advantageous for everybody. With a traditional 401(k) plan, you don’t pay taxes on contributions until you withdraw the money. With Roth plans, you pay taxes before making your contribution. The Roth account may be a better choice for those who expect to be in a higher income tax bracket when they retire, such as a new sole proprietor. SECURE 2.0 allows SIMPLE and SEP IRAs to accept Roth contributions, and if employers offer the option, the law lets employees choose to have employer-matching contributions taxed immediately on a Roth basis or upon withdrawal. High-earning employees won’t have as many options. Starting in 2024, SECURE 2.0 also will require high earners — those with income of $145,000 or more per year — to make catch-up retirement contributions into a Roth account.

Ages 59 to 77

Baby Boomers

Older boomers may be focused on making their money last, while some younger ones may feel the pressure of playing catch-up. No matter where you fall on the spectrum, here’s how SECURE 2.0 could address your needs.

• Your earnings have longer to increase. The longer your money stays invested in an IRA or retirement plan account, the more time your assets have to grow. SECURE 2.0 raised the age when people must take required minimum distributions, or RMDs, from 72 to 73 in 2023. In 2033, the age will rise to 75. When planning for retirement, you can determine if it makes sense to put off withdrawing from these accounts and living off of other income streams. While RMDs weren’t required for Roth IRAs in the past, they were required by Roth accounts in retirement plans such as 401(k)s. Thanks to SECURE 2.0, Roth accounts in retirement plans will no longer be subject to RMDs starting in 2024.
• You will pay less for a missed RMD. Previously, you were charged a 50 percent penalty if you didn’t take an RMD when required. SECURE 2.0 decreases the penalty from 50 percent to 25 percent, and it may allow the penalty to be further reduced to 10 percent if you take the RMD in question within two years.
• You can make larger catch-up contributions. More than 70 percent of baby boomers say they are behind in saving for retirement. Starting in 2025, SECURE 2.0 will allow those between ages 60 and 63 to make larger catch-up contributions. Pre-retirees in that age group will be able to save the greater of $10,000 or 50 percent more than the regular catch-up amount, indexed to inflation.

After decades of hard work and responsibilities, we all deserve to live the retirement that we desire. Whether you are just starting out in the workforce or closing in on retirement age, SECURE 2.0 may make your journey to getting there a little easier.