
Home » Insights » Retirement » SECURE 2.0 Act Retirement Saving Incentives
Jaron Carmichael
CFP®, AIF®, Director of Retirement Group, Wealth Advisor
Among its many changes to retirement planning, the SECURE 2.0 Act can help people begin saving earlier in life.
American workers in the early to middle stages of saving for their retirement will get added support from key provisions of the SECURE 2.0 Act. Among its 90-plus rule changes, this new law offers more options for employees and employers to contribute to retirement accounts.
Ratified at the end of 2022 as an update to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, SECURE 2.0 reshapes many aspects of retirement planning and related tax considerations over the next three years. In this post, we’ll explore several features of the law that are designed to help people begin planning for retirement earlier in life and more easily cover short-term expenses without draining their long-term savings accounts.
Beginning in 2025, most employer-sponsored retirement plans will be required to automatically enroll eligible employees. SECURE 2.0 sets the employee minimum contribution rate at 3% of income, with automatic annual savings rate increases of 1%, until an employee reaches at least 10% but not more than 15% of their income. Employees can also choose to opt out of an employer-sponsored plan.
Effective this year, employers are allowed to make matching and non-elective contributions to an employee’s Roth retirement account. Previously, employer contributions could only be made to pre-tax accounts such as a 401(k) or an individual retirement account (IRA).
With a Roth account, contributions are subject to income tax but all distributions in retirement are tax-free for the original account owner. This means that if an employee elects Roth treatment for an employer contribution, they’ll have to report it as taxable income. All future growth will be tax-free, however, as long as the standard conditions for a Roth account are met.
Beginning in 2024, employers are formally permitted to make matching contributions to employee retirement accounts based on the amount of an employee’s student payments. While the IRS historically has allowed this practice, no statutory rule specifically authorized it prior to passage of SECURE 2.0.
For example: If an employer-sponsored retirement plan includes a 5% matching contribution and an employee’s student loan payments total $10,000 during a plan year, the employer can add $500 to the employee’s retirement account. This is in addition to matching other amounts that the employee may contribute to their employer-sponsored retirement plan.
Beginning in 2024, non-highly compensated employees—currently defined as those earning less than $150,000 annually—will be able to contribute up to $2,500 per year (or a lower amount determined by their employer in a dedicated emergency-savings Roth account that’s added to the employee’s retirement plan account. In a year, the first four withdrawals from this emergency savings account would not be subject to fees or charges based solely on making the withdrawal.
Employers may automatically opt employees into the emergency savings account at no more than 3% of their salary. Once the annual cap is reached, additional contributions can be directed to the employee’s Roth-defined contribution plan or stopped until the balance attributable to contributions falls below the cap. Contributions are treated as elective deferrals for purposes of retirement matching contributions. Upon leaving their employer, the employee may take unused emergency savings as cash or roll it into a Roth-defined contribution plan or IRA.
We encourage you to work closely with a trusted financial advisor in evaluating how SECURE 2.0 may influence your overall wealth management strategy. Visit our SECURE 2.0 Act resources page to learn more. You can replay webinars highlighting various benefits of the new law, read additional commentary by Mercer Advisors senior wealth managers, and keep up with the latest news about this important legislation.
Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
with one of our talented wealth advisors who will help you connect all your financial dots
All investing involves risk, including the possible loss of principal. Portfolio management strategies such as diversification, asset allocation, and rebalancing do not ensure a profit or guarantee against loss. There is no guarantee that any investment strategy will achieve its objectives. Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning document preparation and other legal advice are provided through Advanced Services Law Group, Inc. Mercer Advisors Inc. is a Delaware corporation and is in no way affiliated with Mercer LLC, Mercer Investments, or the Marsh & McLennan Companies. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements. CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute.
Terms & Conditions | Privacy and Security Center | Firm Brochure Adv Part 2A | Form CRS.
©2023 Mercer Global Advisors Inc. All rights reserved.
If you have questions related to our terms and conditions please email [privacy (at) merceradvisors (dot) com]. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.