Navigating SECURE Act 2.0 Updates: Strategies for Client Retirement Plans

The SECURE Act 2.0, signed into law in late 2022, introduced significant changes to retirement planning aimed at increasing savings opportunities and enhancing flexibility. As its provisions continue to roll out through 2025, financial advisors have a critical role in helping clients understand and take advantage of these updates. With features like delayed Required Minimum Distributions (RMDs), expanded catch-up contributions, and employer plan enhancements, SECURE Act 2.0 offers new strategies for optimizing retirement plans.

Here’s how to navigate these updates and align them with your clients’ retirement goals.

1. Delayed Required Minimum Distributions (RMDs)

SECURE Act 2.0 raises the age for RMDs from retirement accounts. Starting in 2023, the RMD age increased to 73, and by 2033, it will rise further to 75.

• Opportunity for Clients: This delay allows clients to keep their retirement funds growing tax-deferred for longer. It also provides additional time for Roth conversions or other tax-efficient strategies.
• Strategy: Work with clients to revisit their withdrawal plans. For clients with significant retirement account balances, consider whether delaying RMDs or converting portions to a Roth IRA during lower tax years makes sense.

2. Expanded Catch-Up Contributions

Beginning in 2025, individuals aged 60–63 will be allowed to make larger catch-up contributions to their workplace retirement plans. The limit will be $10,000 annually or 50% more than the regular catch-up amount, whichever is greater.

• Opportunity for Clients: Clients nearing retirement can boost their savings significantly during peak earning years.
• Strategy: Encourage high-income clients to take advantage of these increased limits. For clients in lower tax brackets, discuss using these contributions in Roth 401(k) accounts for future tax-free withdrawals.

3. Roth Contributions for Employer Plans

The act introduces more options for Roth contributions in employer-sponsored retirement plans. For example, employers can now match employee contributions into a Roth 401(k) account.

• Opportunity for Clients: Roth contributions provide tax-free growth and withdrawals, making them attractive for clients in higher tax brackets or those expecting rising tax rates in the future.
• Strategy: Assess clients’ tax situations to determine if Roth contributions are advantageous. Educate them about the long-term tax benefits of building Roth assets alongside traditional retirement accounts.

4. Automatic Enrollment and Escalation

Starting in 2025, most new 401(k) and 403(b) plans will be required to automatically enroll employees at a contribution rate of at least 3%, with automatic escalation of 1% annually up to 10%.

• Opportunity for Clients: Automatic enrollment can help younger clients start saving earlier, while escalation ensures consistent increases in contributions over time.
• Strategy: For small business owner clients, highlight the benefits of offering auto-enrollment plans to attract and retain employees. For individual clients, review their contributions to ensure they’re maximizing their savings potential.

5. Enhancements for Small Businesses

The SECURE Act 2.0 provides increased tax credits to small businesses that establish retirement plans, covering up to 100% of administrative costs for the first three years for businesses with up to 50 employees.

• Opportunity for Clients: Small business owners can save on taxes while offering competitive benefits to employees.
• Strategy: Advise small business owner clients to set up or enhance retirement plans. Highlight the financial advantages of the tax credits and the potential for increased employee satisfaction.

6. 529-to-Roth IRA Transfers

Starting in 2024, unused funds in 529 education savings accounts can be rolled over into a Roth IRA for the account beneficiary, subject to certain limits.

• Opportunity for Clients: Clients with overfunded 529 plans can repurpose unused savings into retirement funds without incurring penalties.
• Strategy: For clients concerned about over-saving for education, highlight this feature as a way to maximize tax-advantaged growth. Ensure the 529 account meets the 15-year holding requirement and plan for contribution limits.

7. Student Loan Matching Contributions

Employers can now make matching contributions to retirement plans based on employees’ student loan payments.

• Opportunity for Clients: Employees burdened with student loans can begin building retirement savings even while focusing on debt repayment.
• Strategy: Educate clients on how this provision works and encourage them to talk to their employers about implementing this option. For business owner clients, suggest offering this feature as a way to attract younger talent.

8. Emergency Savings Accounts Linked to Retirement Plans

The act allows employers to offer linked emergency savings accounts, funded by payroll deductions, alongside retirement plans. These accounts are capped at $2,500, and withdrawals are penalty-free.

• Opportunity for Clients: Emergency savings accounts provide a financial safety net, reducing the likelihood of clients tapping into retirement funds prematurely.
• Strategy: Help clients prioritize emergency fund contributions before maximizing retirement savings. For employer clients, emphasize the value of offering this feature to improve employee financial wellness.

9. Charitable Giving Strategies

SECURE Act 2.0 expands Qualified Charitable Distributions (QCDs) by allowing a one-time $50,000 transfer to certain charitable trusts or annuities.

• Opportunity for Clients: Clients over age 70½ can reduce their taxable income while supporting causes they care about.
• Strategy: Identify clients who might benefit from QCDs and discuss how charitable giving aligns with their financial and philanthropic goals.

10. Review and Adapt Retirement Plans

SECURE Act 2.0 introduces numerous options and flexibilities, but it also requires careful planning to avoid pitfalls, such as higher tax liabilities or missed opportunities.

• Opportunity for Clients: A proactive approach ensures that clients maximize the benefits of these changes.
• Strategy: Schedule regular reviews of retirement plans with clients, considering their evolving goals and circumstances. Use retirement planning software to model various scenarios and demonstrate the impact of SECURE Act 2.0 provisions.

Conclusion: A New Era of Retirement Planning

The SECURE Act 2.0 represents a major step forward in retirement planning, offering new opportunities for advisors and clients alike. By understanding and implementing these updates, you can help your clients optimize their retirement strategies, navigate tax advantages, and achieve greater financial security.

As provisions of the act continue to take effect, staying informed and proactive will be critical. By guiding clients through these changes with clarity and expertise, you can reinforce your value as a trusted advisor and position your practice for long-term success.