How the Biden Administration’s Secure 2.0 Act could affect your retirement

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The $1.7 trillion federal government spending package recently passed by Congress and signed into law by President Biden includes a collection of provisions that will change and expand the existing retirement savings system, including 401(k)s and individual retirement accounts (IRAs). The changes were added to the annual federal spending law on a bipartisan basis.

 

Known as the Secure 2.0 Act of 2022 – because it builds upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 – the provisions attempt to improve retirement security for Americans. Lawmakers hope the changes will increase the retirement savings of low and middle-income households, provide employers with incentives to offer retirement plans, and make it easier for people to save for retirement.

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The following is a breakdown of some of the changes included in Secure 2.0. Many of the changes won’t take effect immediately but rather take effect in the coming years.

Automatic 401(k) Enrollment

Secure 2.0 will require employers to automatically enroll employees in 401(k) and 403(b) plans beginning in 2025. The initial automatic contribution amount will be at least 3%, but no more than 10%, of an employee’s paycheck into a 401(k) or 403(b). Contributions would increase by one percentage point annually until they reach at least 10%, but not more than 15%. However, employees can still opt out of a plan.

 

The changes won’t impact existing employer-sponsored retirement plans. Moreover, small businesses with 10 or fewer employees, new businesses operating for less than three years, and church and governmental plans will also be exempt.

Matching Contributions for Student Loan Payments

Starting in 2024, student loan payments will count as retirement contributions in 401(k), 403(b), and SIMPLE IRAs, allowing individuals paying off their student loans to qualify for a matching contribution in an employer-sponsored retirement plan.

 

Many people with student loan debt choose to pay off their loans rather than save for retirement, even if their employer offers a 401(k) or similar plan with matching contributions. Lawmakers hope this provision will help people with student loan debt benefit from receiving the matching contributions, so they build up retirement savings while still paying off their loans.

 

Recommended: How an Employer 401(k) Match Works

Increased Access to Retirement Accounts for Part-Time Workers

The SECURE Act of 2019 required employers to allow part-time employees who work between 500 and 999 hours for three consecutive years to participate in 401(k) plans. Secure 2.0 reduces that to two years instead of three.

 

This increased access to retirement accounts for part-time employees will begin in 2025.

Improving Access to Emergency Savings

Employees may be allowed to withdraw up to $1,000 from their 401(k)s and IRAs for certain emergency expenses without the usual 10% tax penalty for early withdrawal if they are under age 59½. Employees who withdraw the savings for emergency expenses can add money back into their accounts within three years. However, if they don’t add money back into their accounts, they cannot make any more emergency withdrawals for three years. This rule will take effect in 2024.

 

Additionally, Secure 2.0 allows employers to automatically enroll their employees into emergency savings accounts linked to their retirement accounts. The emergency savings accounts would be funded through automatic payroll deductions, with a cap of $2,500.

Rolling 529 Savings to Roth IRA

Families with leftover savings in a 529 college savings plan – money intended for a child’s college costs – may be able to roll it to a Roth IRA tax and penalty-free, under certain conditions, starting in 2024. Currently, families must pay taxes and fees if they withdraw money from a 529 and don’t use the funds for higher education expenses.

 

There is a $35,000 lifetime limit on these transfers per account beneficiary. The rollovers are also subject to Roth IRA annual contribution limits, and the 529 accounts must have been open for more than 15 years.

Changes to Catch-Up Contributions

Individuals age 50 years or older can make catch-up contributions to a 401(k) to help increase savings as they near retirement. In 2023, the catch-up contribution limit is $7,500 over the regular contribution limit of $22,500. Under the Secure 2.0 provisions, the catch-up contribution limit increases to $10,000, or 50% more than the regular catch-up amount, for individuals between the ages of 60 and 63 starting in 2025. Catch-up amounts also would be indexed for inflation.

 

The catch-up contribution limit for IRAs, which is currently $1,000 more than regular annual contribution limits, will be indexed to inflation beginning in 2024.

Increased Age of Required Minimum Distributions (RMDs)

The new provisions will increase the age individuals must make withdrawals from 401(k), IRAs, and other retirement plans from age 72 to age 73 in 2023, and then to age 75 in 2033. Before the SECURE Act of 2019, the required minimum distribution (RMD) age was 70½. Also, the penalty for failing to take RMDs would be reduced to 25% from the current 50%.

The Takeaway

The changes outlined above are just a few of the many provisions in the federal spending law that expand the current retirement savings system. They may significantly impact an individual’s ability to build wealth for retirement. The Secure 2.0 Act is one step that policymakers believe will make it easier for individuals to save for retirement by expanding access to workplace retirement plans and providing incentives to save more.

 

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This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.

 

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According to the Federal Reserve, fewer than four in 10 Americans feel they are on track with their retirement savings, but some are bolstering their accounts through extreme savings strategies in hopes of retiring early.

FIRE, which stands for financial independence, retire early, is a financial movement based on three principles:

  • A significant reduction in spending
  • An increase in income
  • Smart investing

It’s important to make the right moves if you want to retire early. Most people need to make some sacrifices to their time and budget to achieve FIRE. You may have to pick up one or two of the best side hustles and completely eliminate discretionary spending, or you might take a more laid-back approach.

Whatever your tolerance for financial sacrifice, there are some simple actions you can take now that could add years to your retirement. There’s bound to be something on this list you could start doing today.

Related: 8 simple pieces of advice from Warren Buffett that any investor can use

 

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To get started with planning for retirement, you’ll need to know where your money’s going. Start by tracking your average expenses for a month, and use that information to create a budget:

  1. Add up your sources of income.
  2. Subtract your predictable expenses, such as rent or a mortgage.
  3. Allocate the leftover income to various spending categories.

Maintaining a budget might be difficult without the right tools, so check out the best budgeting apps and find one that works for you.

 

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It’s helpful to have a retirement age in mind and set a savings goal that will allow you to live comfortably through your extended retirement. A general rule of thumb is that you’ll need 10 times your annual salary invested to be able to retire at 67.

But if you want to retire early and maintain your current lifestyle, you’ll need to save more than that. Plan to have about 45% of your pre-tax, pre-retirement income saved for each year of retirement. Once you decide how much you’ll need, figure out how much you’ll need to set aside each year to get there.

 

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You might think your utility costs are fixed, but there are a number of ways you could save money on utilities. You might:

  • Install energy-efficient features in your home, such as a smart thermostat.
  • Find ways to reduce your usage, like bundling up instead of increasing the heat.
  • Check to see whether you can switch electric companies or switch to a renewable energy plan, either of which might lower your bills.

 

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Although the FIRE movement focuses on investing money, you’ll also need liquid cash stashed in a savings account that you can access in an emergency. This will help you avoid needing to withdraw from your retirement account or borrow money that will cost you in interest charges.

Experts generally recommend keeping three to six months’ worth of expenses in a savings account, but you might feel more comfortable with more than that during the current economic downturn. At a minimum, economists suggest having $2,467 saved in an emergency fund.

And if you open one of the best savings accounts, then your money can still earn some interest even though you’re not investing it.

 

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If you monitor your credit card statements, you might find charges you didn’t expect. Maybe you never have canceled that free trial of a streaming service you only intended to try out.

If you don’t want to analyze your statements, you can use a free app such as Truebill to cancel unused subscriptions on your behalf. Truebill’s team of experts can also help you negotiate your telecommunications bills and request refunds from your bank when you’re charged an overdraft or late fee.

 

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Have you ever purchased an item only to watch the price drop later? Many retailers have policies in place to refund you the difference when that happens. And retailers such as Amazon will even refund your order if your delivery is late.

But keeping track of these policies, while also tracking prices on items you already bought, can be quite a headache. Try using a free service like Paribus or Waldo to more easily find potential refunds. Both work by scanning your email for receipts and monitoring prices on items you’ve purchased.

 

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The more money you contribute to your retirement plans early on, the more your money will grow by the time you’re ready to retire. When saving for retirement, experts generally recommend stashing away 15% of your pre-tax income annually. But if you want to retire early, you’ll need to contribute even more.

You might consider going beyond just matching your employer contribution and trying to contribute up to the 401(k) limit. If you still have money to save, open an IRA in addition. If you’re self-employed, you can use a SEP IRA, which has much higher contribution limits.

 

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Every dollar you spend provides an opportunity to earn cashback and rewards, which can help you save more of your income for retirement. There’s no reason not to use a rewards card for all your purchases. There are plenty of annual fee-free cards to choose from, but you might also consider premium cards if you know the benefits, perks and rewards can offset the annual fee.

Which card will be the best rewards credit card for you will depend on your lifestyle and spending habits. And don’t be afraid to have multiple credit cards to make the most of different spending categories. Just make sure you pay your balance off each month to avoid any interest charges.

 

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If you have fair or bad credit, you may not be able to get a low enough rate on a personal loan to consolidate your debt, and you won’t qualify for a balance transfer card, either. But you can use a debt repayment strategy to get out of debt faster and start saving more.

The debt avalanche method involves prioritizing your highest-interest debt while keeping up with the minimum payments on all your other bills. Once you’ve paid off your highest-interest debt, whether that’s a credit card or a payday loan, you’ll move to the next highest-interest debt on the list.

 

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Why not get paid for the shopping you already do? With Ibotta, you can get automatic cash back for your online shopping when you use the browser extension or mobile app, and there are a few in-store options as well:

  • Purchase a gift card to use in-store and receive cashback instantly.
  • Link your store loyalty card to your Ibotta account for automatic cashback.
  • Select offers in the app prior to shopping, then submit your receipts for cashback.

Ibotta partners with more than 1,500 retailers, so you’ll be able to collect on most, if not all, of your purchases. Ibotta has dished out $600 million to Ibotta users since 2012.

 

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Find out how your salary compares to the average for your industry in your city. You may be able to find a new position at a company that pays better, especially if you’re currently earning below average. Even if you love your job, getting an offer at another company could give you some leverage to negotiate a raise.

You might even invest in some continuing education, such as professional certificates, to make yourself more marketable to future employers. Or you could train for a different career entirely if there are limits to how much you can earn in your industry.

There are plenty of affordable technology boot camps and professional certificates, and there are even paid apprenticeships for certain careers. Just be sure to evaluate the program thoroughly and calculate whether you’ll earn enough incremental income to offset the cost.

 

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If you’re paying high APRs on your credit cards or other debt, you might be able to save money and get out of debt faster by getting a low-interest personal loan to pay off what you owe. It’ll leave you with just one bill to worry about every month, and you’ll pay less over the life of the loan.

If you have good or excellent credit and can pay off your debt within 18 months, you might also consider one of the best balance transfer credit cards to help you pay off your credit card debt. These credit cards come with a 0% introductory APR, and some of them offer that for up to 18 months. This means you can devote more of your money toward paying down the principal.

 

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If you move to a city with a lower cost of living, you could potentially put more of your income toward retirement. That’s especially true if you work remotely, as your salary likely won’t change.

But where should you move? Start by checking out the 25 best cities for remote workers, which were chosen based on cost of living, housing affordability, Wi-Fi speeds and various amenities.

 

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Real estate investments can be lucrative, but they used to require large amounts of cash. These days, you can invest in commercial real estate with as little as a few hundred dollars — and there are ways to invest in real estate without buying property.

Thanks to crowdfunding, real estate investment trusts (REITs) and investing apps, we can now all make moves toward our dream of becoming real estate barons and build income for our early retirement years.

 

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Every insurance provider weighs your information differently, so you might be able to get a better rate by switching to a new provider. Even if you shopped around before you purchased your policy, it’s a good idea to compare prices across insurance companies every six months, especially if any of your circumstances have changed.

For example, to get the best car insurance, you can get quotes from individual providers’ websites, or you can use an insurance rate comparison tool to get multiple quotes at once.

 

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If you’ve already maxed out your contributions on your tax-advantaged retirement accounts, you may be ready to invest money in a taxable brokerage account. You’ll pay taxes on your capital gains with these sorts of accounts, but there’s no limit to how much you can invest, and you can withdraw your money at any time.

To find the best brokerage account, compare fees to get the best deal. From there, decide what combination of stocks, bonds, mutual funds, or exchange-traded funds (ETFs) you’d like to purchase. Or you can opt to go with one of the best investment apps, which can make it easy to get started, often with a very small minimum investment.

 

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Don’t throw away your receipts because those slips of paper could be worth more than you think. With Fetch, you can earn rewards (think gift cards to popular retailers like Amazon and Target) just from scanning your grocery receipts.

You don’t need to pre-select offers, but you can view offers before you shop to maximize your rewards. You’ll earn a minimum of five points for every eligible receipt scanned, but you can rack up way more than that by taking advantage of bonus point offers. You’ll also get 2,000 points for referring a friend. One thousand points are worth $1 toward a gift card.

 

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It can be a smart idea to diversify your investment portfolio with an alternative asset class, such as blue-chip art. Investments in fine art have been known to outperform the S&P 500, and you no longer need millions to get a foot in the door.

With Masterworks, you can invest in shares of paintings at $20 each, with a minimum investment of $1,000. From there, you can choose to hold onto your investment for three to 10 years until the painting is sold, or sell your shares through the Masterworks secondary market.

 

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If you have an extra bedroom, a comfortable sofa, or even an attic space you don’t use, you can earn extra money each month by renting out your space. You might choose to get a roommate or use a platform like Airbnb, which can be one of the more lucrative side hustles in the gig economy.

If you don’t have sleeping space but you have storage space to rent out, check out Neighbor.

 

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Drop is a free app and Chrome extension that rewards you for shopping with hundreds of retailers. In addition to shopping directly from the app, you can link a credit or debit card to automatically get points when you make a purchase at a partner retailer.

Every 1,000 points equal $1, and you can redeem your points for gift cards at top stores like Amazon and Starbucks. Use those gift cards for your everyday purchases, and you’ll have more money left over from your income to contribute to a retirement account.

 

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As of December 2020, the national average annual percentage yield (APY) on a savings account is just .05%, according to the Federal Deposit Insurance Corp. (FDIC). That’s not much compared to what some high-yield savings accounts offer. For example, a savings account with an online bank could earn you 1%.

Although your money will certainly grow faster in a retirement account, a high-yield savings account is a great place to keep your cash. There are even high-yield savings accounts with no minimum balance requirement, so you can open an account and start building toward retirement even with a small amount today.

 

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Bad credit can cost you thousands of dollars in interest charges on your auto and home loans, raise your insurance premiums and make it more costly to take out a personal loan or use a credit card.

Take steps to improve your credit score so you can avoid paying unnecessary interest. Set up automatic payments so they’re always on time, and try to lower your credit utilization ratio (the amount of available credit you’re using) by paying down debt, making payments twice per month, and asking for a higher credit limit.

If you have limited credit history, consider using a secured credit card to build credit, or ask to be an authorized user on a creditworthy relative’s account. Monitor your score regularly with a free service that can help you see simple moves to make that can continue building your score.

 

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It can be tricky to know how much to set aside each month, especially if your income or expenses fluctuate. Digit is an app that analyzes your income, spending and upcoming bills to determine a safe amount to save for you.

Your money is automatically deposited into an FDIC-insured account. Digit can also help you pay off credit card debt and invest to reach your retirement goals.

 

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A lot of people have unclaimed cash they’re not aware is out there. It could be a security deposit that was never returned or an overtime check you never cashed. Or it might be something more significant, like an unclaimed life insurance payout.

It’s easy to check for this money with the National Association of Unclaimed Property Administrators. You’ll need to search by state, so you should conduct a search for all the states you’ve lived in.

 

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If you throw away your old clothes, books, home items or used electronics, you’re throwing away money. It’s easy to resell your items online for cash. Check out the following platforms to get started:

  • Electronics: eBay, Amazon
  • Home items: Letgo, Craigslist, OfferUp
  • Clothing: Poshmark, Mercari, thredUP
  • Books: BookScouter, Amazon, Half Price Books

You can also use many of these same sites to find money-saving deals on secondhand items for your household, in addition to snagging items at local thrift stores.

 

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If you don’t use your car that often, you can potentially earn hundreds of dollars per month renting it out with a service like Getaround or Turo. You’ll need to keep your car clean and well-maintained but beyond that, not much effort is required.

Turo offers a contactless check-in process that allows you to do a remote identification of the driver. Getaround uses a device that allows renters to unlock your car from their phone.

If you’re a frequent commuter, you can also earn money from your car by displaying advertisements as you drive. Wrapify or Carvertise will place removable ads on your vehicle, and you’ll get paid according to how often and where you drive.

 

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The amount you can earn with most side hustles is limited due to time constraints. We all have only so many hours in the day. But passive income opportunities can be a way to earn money while you’re doing other things. Some require effort upfront, but very little ongoing work is needed to keep earning.

For example, ways to earn passive income might include:

  • Creating an online course and selling it
  • Creating a popular YouTube video
  • Becoming a peer-to-peer lender
  • Opening a dropshipping business
  • Monetizing your blog or social media page with affiliate marketing

 

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For many careers, there are opportunities to work freelance in addition to your day job. If you’re a writer, designer, web developer, photographer, assistant, accountant or any other job that lends itself to freelance work, try creating a profile advertising your skills on Upwork or Fiverr.

You can also check out freelance opportunities on FlexJobs or other job sites. Eventually, you may want to create a portfolio website showcasing recent work and testimonials from past clients.

 

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A spending freeze is a planned break from discretionary spending. That means you’ll only put money toward your necessary bills and expenses, such as paying rent and buying groceries.

You’ll cut out all spending on dining out, entertainment, subscription services, clothing and anything else you don’t need to live. It can be hard to keep this up in the long term, but if you plan on doing it for one or two months out of the year, you’ll save a significant chunk of change.

 

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The FIRE movement isn’t for everyone, but anyone can learn from its principles. When you’re about to make a purchase, think about whether you could divert that money to savings instead. If you value financial independence, frugality will follow. And if you have a savings goal in mind, you’ll be more motivated to earn extra income as well.

Even if you don’t want to retire early, this list of money moves can help you reach other financial goals and will contribute to your overall financial stability. In other words, these are healthy choices, especially during an economic downturn.

Whether you want to retire at 45 or 65, know that you have the potential to reach your goal. It’s going to take effort, and you’ll need to make sacrifices, but you’ll ultimately be rewarded with more time to spend however you wish. And these moves are a great place to start.

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This article originally appeared on FinanceBuzz.com and was syndicated by MediaFeed.org.

 

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