SECURE Act 2.0: What Construction Industry Professionals Need to Know

What is the SECURE Act 2.0?

Retirement planning is a concern and it’s no secret that many Americans put off saving for retirement for too long and the SECURE Act 2.0 can help. Maybe certain Americans aren’t eligible due to their job category or industry, the financial incentive isn’t beneficial enough, or they just don’t understand how it works.

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Alarming Lack of Savings within American Households

Many reports show that nearly half of American households have no retirement savings at all. And due to rising inflation and dwindling social security, those who do contribute to retirement planning accounts aren’t saving as much as they will need when the time comes.

Challenges in the Construction Industry

Future finances are just as dismal for employees in the construction industry. According to the Center for Construction Research and Training, construction workers are even less likely than those in other industries to be eligible for or participate in a retirement plan. As of 2015, they said, only 27.4% of wage-and-salary construction employees participated in an employment-based retirement plan.

SECURE Act Intervention

Because of the ongoing need to better prepare more Americans for retirement, the Setting Every Community up for Retirement Act (SECURE Act) was passed in 2019 to strengthen the American retirement system. The goal was to make it easier for employers to offer tax-advantaged savings plans and easier for employees to participate in them.

SECURE Act 2.0’s Limitations

While the SECURE Act was a step in the right direction and changed a variety of rules like eligibility and withdrawals, Congress felt this wasn’t enough.

Commencement of SECURE Act 2.0: Shaping the Future of Retirement Planning

In 2022, they passed the SECURE Act 2.0 to expand and enhance savings options, aiming to construct a more robust retirement strategy for Americans. The SECURE Act 2.0 added dozens of provisions starting last year (2023), set more changes for 2024, and scheduled even more to kick in for 2025, 2026, and 2027.

What’s New in 2024?

While your investment adviser or retirement plan administrator is responsible for putting the applicable new SECURE Act 2.0 rules into effect with your particular plan, it’s a good idea to understand what differences to expect. Among updates or new provisions this year:

Student Loans and Retirement

Employees can now save for retirement while also paying for student loans instead of prioritizing one over the other. When you make a student loan payment, your employer may elect to “match” the same amount for you into a 401(k), 403(b), or IRA.

Emergency Savings Accounts (ESAs)

Employers that offer qualified retirement plans can automatically enroll non-highly compensated employees in ESAs under the umbrella of workplace retirement plans. Employees can now make Roth contributions up to $2,500 to the ESA to help avoid the need for early withdrawals from retirement savings in a crisis.

529 Rollovers

Funds that were left over in a 529 college savings account can now be rolled over to a tax-free Roth IRA, as long as the 529 plan has been open for at least 15 years and the amounts are within the rollover and annual contribution limits.

Withdrawals for Emergencies

Employees can now make one hardship withdrawal of $1,000 per year to cover personal and family emergency expenses without owing the normal 10% penalty, as long as they self-certify that the money is for an emergency.

Special Provisions of SECURE Act 2.0

• Domestic Abuse – Victims of domestic abuse under age 59 ½ can withdraw up to $10,000 from IRAs and 401(k)s without owing the penalty.
• Catch-up Contributions – Annual IRA catch-up contributions for employees over 50 are now indexed for inflation.
• Required Minimum Distributions (RMDs) – Roth 401(k) accounts in employer retirement plans are now exempt from RMD requirements. While lifetime RMDs are still required from pre-tax retirement accounts, the age was increased with SECURE 2.0 in 2023 to age 73 (and will increase again to 75 in 2033)

Innovative Plans

• Starter Retirement Plans – For employers who don’t already offer retirement plans, SECURE 2.0 created two new plan designs including a “starter 401(k) deferral-only arrangement,” and a “safe harbor 403(b) plan.”
• Former Employee Distributions – The threshold for employers to cash out former employees’ retirement accounts increased from $5,000 to $7,000. This can be done without the consent of the former employee if rolled over into an IRA.

Retirement Planning in The Future and the Past

2025, 2026, and 2027 changes are scheduled to include updates for long-term part-time workers, higher catchup limits, automatic enrollments, more rollover guidance, disability payment exclusions, and more. Keep an eye out for specific guidance toward the end of each year.

You may have noticed or heard rumblings about changes to your company’s retirement planning process already. Most notably, in 2023 the RMD age increased while the penalties for failing to take an RMD decreased. There were also provisions for Qualified Charitable Contributions and Qualified Longevity Annuity Contracts.

Retirement Planning and Finance Advice

Regardless of changes the government makes to employer retirement programs, employees are encouraged to learn all they can about their company’s plan and examine their retirement goals and savings regularly.

If you’re not contributing to a retirement plan, experts recommend you start ASAP and follow these steps:

• Set a comfortable contribution amount and arrange to periodically increase it. Many employees set their contribution as a percentage (rather than a flat dollar amount) that will automatically increase as they receive pay raises.
• Maximize your employer’s full 401(k) match. Not taking advantage of the match is like leaving free money on the table.
• Choose your investments wisely and consider plan fees. Take the time to learn about how your company’s 401(k) plan works, how rollovers and distributions are accomplished, your company’s vesting schedule, and more.

For more information about how to choose a retirement plan, the IRS gives this guidance: Choosing a Retirement Plan – IRS.

FAQs about SECURE Act 2.0 and Retirement Planning

The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.