The secure 2.0 act is going to allow investors catch up contributions to increase annually based on the inflation rate starting in 2024. As of now, the extra amount is only $1,000 but once this new rule takes effect it will increase by the percentage of inflation.
Note, however, that if the inflation adjusted amount is not in a “multiple of $100” the new amount be rounded down to the next lower multiple of $100. As a result, the $1,000 amount might not rise right away.
Now, typically inflation is only 3% annually so 3% of $1000 is $1030. So if prices are coming down as Wharton professor Jeremy Siegel is predicting, this new rule may not even take effect.
Not knowing the “exact details” of this act this will only increase the contribution rate every 2 years because the rate would have to be 3% for 2 years to get up to $1,060 which in essence would round up to $1,100.
If the increase is on the full amount which is closer to $7,500 for people closer to retirement then a 3% increase would be more meaningful than increasing to $7,200 (rounded down) the question is,
“How will an extra few hundred bucks saved really make a difference for retirement?”
For younger investors absolutely due to compounding interest for older investors, not so much because time is our greatest asset when it comes to investing.
The larger impact is on the 401k side of things because of a few items:
1. Student loans and 401k.
Employer Fund Match for Student Loan Payments: Under the SECURE 2.0 Act of 2022, your employer can make a matching contribution to your retirement plan account based on your student loan amount.
2. No RMDs for Roth 401(k).
This gives investors the opportunity to potentially create a tax free income stream pay taxes now so you don’t have to pay any taxes later.
3. Lost 401(k) Accounts.
Retirement Savings “Lost and Found”: The SECURE 2.0 Act is creating a database to help people who change jobs to locate all of their 401k accounts it’s like a treasure chest that you don’t have to go on a wild goose hunt to find what’s rightfully yours.
Josh, the “Unconventional” Money Guy
Managing Member | 369 Financial