Over the last couple of years, we have been providing updates about a piece of legislation that is called SECURE Act 2.0. It is an expansion of the original SECURE Act that was passed in December of 2019 and enacted in 2020. Both measures impact individual retirement account parameters.
The Omnibus Appropriations bill was in the news a lot as the new year was approaching, and it has now been signed into law. Provisions contained in SECURE Act 2.0 are part of this measure, and we will review some of the most important ones in this post.
Required Mandatory Distributions
Traditional individual retirement account holders are required to take distributions at some point. This is because of the fact that the contributions into this type of account are made with pre-tax earnings. The legislative parameters include required minimum distributions (RMDs) because the government wants to start getting that tax money while the account holder is still living.
Before the initial SECURE Act was enacted, the age was 70.5, and it was raised to 72. Under the terms of this new measure, the age is now 73 in 2023. In 2025, it will go up to 75 years of age.
Mandatory Auto-Enrollment
A number of these provisions will be installed in 2025, and mandatory auto-enrollment is one of them. At that time, employers that are rolling out new retirement savings plans will be required to auto-enroll all employees. The minimum automatic deduction will be 3 percent, and the maximum will be 15 percent. Employees will have the right to opt out, but at the end of the day, more people will wind up saving for retirement.
Student Loan Matches
You hear a lot about student loan debt having an impact on the lives of young workers on multiple levels. When it comes to retirement savings, many people that are making loan payments decide that they cannot afford to contribute into 401(k) plans at work.
As a result, they cannot capitalize on employer matches when they are offered, but a provision in this legislation changes the playing field. Now, an employer can choose to match student loan payments that are made by their employees. In this manner, they will have money going into their 401(k) plans while they are paying down their student loan debt.
Catch-Up Contribution Increase
Workers that are at least 50 years of age can contribute up to $7500 into their 401(k) plans above and beyond the limit for younger workers. This measure will increase the figure to $10,000 for people that are between 60-64 years of age. Once again, this is another change that will take effect in 2025.
Anticipate Long-Term Care Costs
While we are on the subject of retirement planning, you should consider the potential impact of long-term care costs. Medicare does not pay for living assistance, and seven out of 10 elders will need it. Some people will get the care that they need in their own homes from family members and friends, but more than half will require professional care.
These costs can potentially consume a significant portion of your legacy depending on your resources. There is a solution in the form of Medicaid. Even though it is a need-based program and there is a low asset limit, we can help you implement a nursing home asset protection strategy.
It will typically revolve around the utilization of a Medicaid trust. You convey income-producing assets into the trust, and you can continue to accept the earnings. The principal would be out of your reach, but it would not count if and when you apply for Medicaid.
Advance planning is part of the equation, because there is a five year look back period. You have to fund the trust at least five years before you submit your application for Medicaid coverage.
Schedule a Consultation!
A little foresight can go a long way, and your family members may be very grateful in the long run if you develop a nursing home asset protection plan. If you are ready to get started, you can schedule an appointment at our Bluffton, SC elder law office if you call us at 843-815-8580, and you can use our contact form to send us a message.
Hunter is a member of the South Carolina Bar Association, the Beaufort County Bar Association, and has served on charitable and advisory boards in the Bluffton/Hilton Head area.
Hunter graduated from Hilton Head High School. He then earned his Bachelor of Science Degree in Economics from Clemson University, in Clemson, South Carolina.
Hunter graduated Cum Laude from Regent University School of Law in Virginia Beach, Virginia, having earned a Juris Doctor Degree. He also wrote his doctorial thesis on Estate Planning Dynasty Trusts.
Hunter has called Beaufort County home for since 1984, where he lives with his wife and two children.In his spare time he dabbles in automobiles, reading history, hunting and fishing.
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