Financial wellness is all about making the best possible use of your resources. If you want to stay balanced and in control of your finances, it’s important to know which sources of funding you can draw from when you need them.
Take your retirement savings, for example. Your retirement funds play a key role in your financial wellness. They help secure your future so you can enjoy your life in the moment. It’s a way to lay the groundwork for your long-term comfort and happiness. But do you know how to leverage these funds for optimal financial wellness?
Understanding the ins and outs of your retirement savings allows you to make empowered money decisions today that help contribute to your long-term financial wellness. For example, did you know that starting in 2024 you can withdraw up to $1,000 from your retirement funds, penalty-free, to cover a personal or family emergency?
On the surface, drawing money from your retirement account may not seem like the ideal choice. But when an unforeseen expense arises that you can’t afford to cover with your current funds, considering this option could prevent you from taking on additional debt. If the alternative is to put the expense on a credit card or take out a high-interest loan, withdrawing it from your retirement fund could save you money in the long run.
The ability to withdraw funds from your retirement account without penalty or fees is just one of the new provisions of SECURE Act 2.0, a recent update to the federal rules that govern how you contribute to and access your retirement savings. Passed by Congress at the end of 2022, the new rules include dozens of provisions that could affect you and your financial wellness. Here are a few more you might want to know about.
Required minimum distribution (RMD) age: When you reach a certain age, federal law requires you to start making withdrawals from your retirement account, whether you need them or not. If you fail to do so, you’ll have to pay a penalty. Until recently, the age for taking required minimum distributions was 72. The new law raises that age to 73 starting in 2023 and 75 starting in 2033. That means if you’re not yet 72 and you still have enough income to live on, you can delay withdrawing from your retirement funds for a few more years and give your money more time to accumulate interest. In addition, the 50% penalty for missing an RMD has been lowered to 25% — and it could drop to 10% if you fix the mistake promptly.
Catch-up contributions: If you’re 50 or older and haven’t been able to save as much toward retirement as you’d like, you can make additional contributions to your 401(k) or individual retirement account (IRA) beyond the annual contribution limits set by the IRS. Now, according to the new rules, individuals between the ages of 60 and 63 can make catch-up contributions to their workplace retirement plans.
Automatic enrollment: Starting a new job? Your employer is now required to automatically enroll you in their workplace retirement plan unless you specifically opt out. While the new rule may make onboarding a bit easier for those who do want to participate in their employer-provided plan, not everyone chooses to do so. If you have a different retirement strategy and prefer not to contribute to a workplace plan, be aware that you’ll need to take action if you do not wish to be automatically enrolled.
Student loan matching: If you’re having trouble saving for retirement because you’re burdened with hefty student loan payments, the new law has some good news for you. Starting in 2024, employers can match qualified student loan payments with retirement contributions. That means even if you can’t afford to contribute to your workplace retirement plan yourself just yet, your employer can help you get started.
Education savings plans: Have you been saving for your child’s education with a 529 plan? This one’s for you. Starting in 2024, you can roll your 529 funds over (up to $35,000) into a Roth IRA in the name of the student beneficiary. That way if your child ends up getting a scholarship, choosing a less expensive school or opting out of higher education altogether, your funds can get redirected to a Roth IRA.
These are just a few of the new federal retirement rules that could affect your financial wellness. Want to learn more about the SECURE 2.0 act? Our Investment Services team is ready to help guide you.13 Contact them today to find out more.
