We have been sharing information about a piece of legislation that is being called SECURE Act 2.0 as the bill has progressed through the legislative process. It has finally become a reality, because it is actualized through a number of provisions in the 2023 Consolidated Appropriations Act, which is commonly known as the Omnibus Bill.
Let’s look at some of these provisions that will impact the way that people can save for retirement.
Mandatory 401(k) Enrollment
This measure includes a provision that requires employers to enroll employees into their 401(k) plans. The minimum required contribution rate is 3 percent, and the maximum is 10 percent. It applies to businesses with more than 10 employees that have been around for more than three years.
Increased Required Minimum Distribution Age
Traditional account holders are required to start taking distributions from their accounts when they reach a certain age. This is because the accounts are funded with pre-tax earnings, and the IRS needs to start collecting at some point. The original SECURE Act raised the age from 70.5 to 72. Under the terms of this bill, the age will go up to 73 this year, and in 2033, it will be 75.
There is another change regarding the required minimum distributions (RMDs). The penalty for failing to comply with the RMD requirement has been 50 percent. This provision would reduce it to 25 percent in most cases, and it could go down to just 10 percent in others.
Increased Catch-Up Contributions
Up until 2023, people that are 50 years of age and older have been entitled to the utilization of catch up contributions. They could put up to $6,500 extra into their accounts above the standard maximum. In 2025, this figure will go up to $10,000 for people that are between the ages of 60 and 63.
401(k) Participation for Part-Time Workers
After the first SECURE Act was enacted, the part-time workers could participate in 401(k) plans after three consecutive years of employment if they logged a certain amount of hours. This is going down to two years of employment.
Student Loan Payment Matches
Some people that have student loan debt use money that they could have otherwise saved to make their student loan payments. These people could not benefit from employer 401(k) matches. A provision in this bill changes the playing field. Employers can now provide 401(k) matches of qualified student loan payments.
Anticipate Potential Nursing Home Costs
When you are thinking about your retirement years, you should consider the potential impact of long-term care costs. The majority of senior citizens will need paid living assistance eventually. Many will reside in nursing facilities at some point in time. Medicare does not cover custodial care that is provided in the home or in an outside facility.
The national median cost for a year in a private room in a nursing home is over $100,000, and it is closer to $180,000 in the Hartford area. One year is the average length of stay, but 13 percent of people that receive paid care incur the bills for more than five years.
Medicaid eligibility is the widely embraced solution. However, since there is a low asset limit, you have to develop the right financial profile. This can be done through the utilization of a Medicaid trust.
The problem is, you cannot create the trust after you find out that you need long-term care. There is a five-year look back period, so you have to fund the trust at least five years before you apply.
That’s the bad news, but the good news is that you can accept distributions of the earnings while you are living independently. We can help you put a plan in place at the right time so your assets will be protected for the benefit of your loved ones.
Schedule a Consultation Today!
If you are ready to develop a plan for aging that leads to the appropriate passing of your legacy, we are here to help. You can schedule a consultation at our Glastonbury or Westport, CT estate planning offices if you call us at 860-548-1000, and you can use our contact form to send us a message.
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