Retirement planning can feel like a complex task especially for the self-employed. Although its importance has long been established, statistics show that even more people fall behind their target savings. According to the Federal Reserves, only 34% of the non-retirees in 2023 feel like their retirement savings are on track (a decline from the 40% rate in 2022).
If you’re an individual who needs a boost in your retirement plan, the SECURE Act 2.0 is here to make saving for retirement more achievable and flexible.
What is SECURE Act 2.0?
The SECURE Act 2.0 was signed in to law in 2022 to further improve the retirement savings opportunities for Americans by expanding the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019. It aims to make retirement savings easier, increase flexibility for retirees, and encourage more people to save for their future.
Key Benefits for the Self-Employed
The Secure Act 2.0 is loaded with provisions to help individuals reach their retirement goals. Below are some of the key benefits of the Secure Act 2.0:
- Emergency Withdrawals Without the Penalty
Currently, if you tapped into your 401k or retirement savings before age 59 ½, you would face a 10% early withdrawal penalty.
Under SECURE Act 2.0, individuals can make penalty-free emergency withdrawals of up to $1,000 per year from their retirement funds. You also have the option to repay the withdrawn amount within three years to keep your retirement balance on track. However, if you were not able to put the money back into your retirement fund, you cannot make any more withdrawals within the three-year period.
This provision provides a safety net for emergencies without sacrificing your retirement plan and without incurring additional penalties.
- Bigger Catch-Up Contributions
One of the highlights of the SECURE Act 2.0 is the additional age category to save more money for your retirement. If you’re 50 or older, you can already add up to $7,500 per year on your retirement savings. But beginning 2025, individuals aged 60 to 63 will have a higher catch-up contribution limit of the greater between $10,000 or 150% of the “standard” catch-up contribution for that year, subject to yearly inflation adjustments.
This provision provides you with more ways to catch up on your retirement savings, especially if you’ve fallen behind in your expected contributions.
- Changes to RMDs
The SECURE Act 2.0 has made several adjustments when it comes to the Required Minimum Distribution (RMD). Here are some of the highlights:
- Delayed start to make RMDs. The SECURE Act 2.0 adjusted the RMD age from 72 to 73 in 2023 and 75 starting 2033. This delay in RMDs gives your retirement fund more time to grow tax deferred.
- Lower Penalties for Missed RMDs. The IRS used to impose a 50% excise tax as penalty for individuals who missed an RMD. With the SECURE Act 2.0, this penalty has been reduced to 25%. And if you are able to correct the missed RMD in a timely manner, the penalty is further reduced to 10%.
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