Greater financial wellness predicted for 2024 and beyond
As more provisions of the SECURE 2.0 Act take effect in 2024, some experts are predicting a positive trend when it comes to employee retirement planning and financial wellness.
One of the Act’s mandatory provisions that goes into effect in 2024 is the end of required minimum distributions for participants in employer retirement plan Roth 401(k)s. This will help older individuals continue to grow their retirement nest eggs if they choose to continue working.
Optional provisions in SECURE 2.0 include a way for plan sponsors to offer matching 401(k) contributions to those making qualified student loan payments, as well as two types of emergency savings accounts:
- The first type of emergency savings account allows for the creation of a “sidecar” account tied to a participant’s retirement account. This account must be capped at $2,500, or a smaller amount set by the sponsor. Sidecar account withdrawal rules are broader than ordinary IRS hardship withdrawal rules. Essentially, it is a small, more accessible, “rainy day” fund, as the first four withdrawals in a year would be tax- and penalty-free.
- A second emergency savings option permits participants to withdraw up to $1,000 a year from their retirement account to pay for an emergency. They must repay the $1,000 within three years to withdraw in this manner again, and they may repay the account through ordinary deferrals. A sponsor may rely on participant self-certification that they are using the money for an emergency.
Looking ahead with optimism
In a November Plansponsor article, David Stinnett, a principal in Vanguard, said he looks at 2024 with “a lot of optimism.”
Positive things he sees are:
- Higher participation rates,
- Higher savings rates,
- Higher rates of participants investing in funds with good asset allocation.
That last one helps keep people from panicking when markets are volatile, he said.
Stinnett added that in recent years, more plan sponsors have adopted features like automatic enrollment and automatic escalation into their plans which have allowed more people to take part in retirement plans, saving more than they had the year prior.
Those enrollment rates should continue to increase beyond 2024, as an automatic enrollment provision of Secure 2.0 goes into effect next year.
New 401(k) and 403(b) plans set up after Dec. 31, 2024, must automatically enroll employees in their plan at a rate of at least 3 percent but not more than 10 percent. It would then be up to employees to opt out if they wish.
Key to remember: As the Secure 2.0 Act continues to roll out, employee retirement planning and overall financial wellbeing show signs of improvement.