Young businesswoman admiring her savings
Secure Act 2.0 makes numerous small changes to retirement plan savings rules in an effort to encourage Americans to save more for their retirement. In total, there are over 90 provisions in Secure Act 2.0, but some are especially beneficial for women.
Why focus on women, in particular, when arguably most of the provisions of Secure Act 2.0 technically impact both women and men? The answer is because the financial odds are stacked against women. Statistics abound showing that women are still playing financial catch-up to men. No single solution can universally fix these issues, but educating and empowering women to save more towards their long-term financial security is one important piece of the solution, and Secure Act 2.0 takes several meaningful steps in this direction.
Delayed RMDs
The most headline-worthy change in Secure Act 2.0 is the delay in the age at which Required Minimum Distributions (RMDs) begin. For several decades, the RMD age was 70½ until the passage of the original Secure Act in 2019 delayed RMD age to age 72. Secure Act 2.0 further delays the RMD age to age 73 for those born between 1951-1959, and out to age 75 for those born in 1960 or later.
Why does this matter? RMDs force savers to withdraw from their tax-deferred retirement plans so that the IRS can tax those distributions. Since every dollar that is withdrawn from an account such as an IRA/401k/403b or other tax-deferred retirement plan is taxed as though you received that dollar in a paycheck, RMDs can become a heavy tax burden, particularly for those who do not need the funds, either because they are still working or are receiving distributions from another account like a pension, annuity, or taxable account. The impact of unwanted RMDs can be substantial for a retiree, most notably in the form of increased Medicare premiums and IRMAA surcharges.
Delaying the RMD age allows more opportunities for strategic planning. Preemptively converting funds from a tax-deferred retirement account to a Roth IRA prior to RMD age will decrease future RMDs by lowering the value of the tax-deferred account and increase the amount of tax-free assets available to better control tax liability in later years. The key here is to not sit back and wait until the government forces withdrawals at RMD age, but to proactively plan and take steps today to take full advantage of this update.
Benefits for Part-Time Workers and Military Spouses
Secure Act 2.0 also takes steps aimed to increase participation in employer-sponsored retirement plans amongst two groups who have historically been prevented from participating in meaningful retirement savings – part-time workers and military spouses.
Section 125 of the bill requires employers to make long-term part-time employees eligible for participation in their retirement plans. Beginning in 2025, part-time employees who have been working for two consecutive years and have accrued at least 500 hours of service will be eligible to contribute to their employer’s retirement plan. This is impactful for women, in particular, as they are more than twice as likely as men to work part-time.
According to the Bureau of Labor Statistics’ Current Population Survey for 2022, approximately 16% of employed individuals are part-time workers by choice “for non-economic reasons” (e.g. to provide childcare or caregiving for other family members, to attend school, etc.). Of those part-time-by-choice workers, 64%, or nearly 14 million, are women. The number of women in the workforce who are employed part-time has trended down slightly over the past three decades, but still averages one in five, compared to one in ten men. Increasing the availability of the employer-sponsored retirement plan is a good opportunity for part-time working women.
Similarly, Section 112 incentivizes employers (via a tax credit) to ease employer-sponsored plan participation requirements for military spouses. Many military spouses, 92% of whom are women, according to the Women’s Bureau of the Department of Labor, are forced to move regularly due to their spouse’s rotating military assignments and may not be at a job long enough to meet traditional eligibility requirements.
Employers are incentivized to make military spouses eligible to participate in their retirement plan within two months of hire, eligible for employer matching and contributions immediately, and to make any employer contributions to their retirement plan immediately vested. Lowering barriers of entry will enable more military spouses to contribute to retirement plans. Of course, the burden is then on the participant to remember to keep track of and roll over the funds that they work so hard to save, as they move from employer to employer!
Increased Catch-Up Contributions
Not specific only to women, but still very important, catch-up contributions are also given a bump in Secure Act 2.0. There is a limit to how much an individual can contribute to a qualified retirement account each year. Those over age 50 are allowed to contribute more than the base limit, what is known as a “catch-up” contribution. In 2023, regular contributions to IRAs (both Traditional and Roth) are limited to $7,000. However, those over age 50 are allowed an additional catch-up contribution of $1,000. The catch-up contribution limit for IRAs and Roth IRAs has been stuck at $1,000 for many years, but thanks to Secure Act 2.0, IRA catch-up contributions will now be indexed for inflation beginning in 2024, just like the base contribution.
The contribution limits for employer-sponsored retirement plans such as a 401(k), 403(b) or Thrift Savings Plan (TSP) are significantly higher than those of an IRA and are also getting a savings boost. In 2023, the regular contribution limit for individuals is $22,500, and those over age 50 are allowed an additional catch-up contribution of $7,500. Beginning in 2025, Secure Act 2.0 further increases the catch-up contribution for individuals between the ages of 60-63, for whom the catch-up contribution will now be $10,000 or 150% of the standard catch-up contribution amount, whichever is higher. For illustrative purposes, if this were effective this year, those aged 60-63 would be able to make a catch-up contribution of $11,250 (150% of the standard 2023 catch-up contribution of $7,500). Keep in mind, however, that this does not go into effect until 2025.
Note that many employer plans require participants to set their catch-up contributions separately from their regular contributions. Participants who aren’t paying attention are at risk of not taking full advantage of the increased catch-up contribution limits.
Provision For Domestic Abuse Survivors
Up to this point, I’ve highlighted provisions of the Secure Act 2.0 that enable women to contribute more or keep more in their retirement accounts, but I would be remiss if I did not mention a special provision that allows penalty-free withdrawals from a retirement plan. Beginning in 2024, domestic abuse survivors are allowed to access retirement funds penalty-free to help them escape an unsafe situation due to domestic abuse. The withdrawal amount is limited to $10,000 or 50% of the account balance, whichever is less, and income taxes must still be paid on the amount withdrawn if it is withdrawn from a non-Roth account. However, the withdrawal is allowed to be paid back within 3 years to recover the taxes paid. To access the funds, the participant merely needs to self-certify that they are withdrawing the funds because they are in an unsafe situation.
Eighty-five percent of intimate partner domestic abuse victims are women, according to the Bureau of Justice Statistics 2003 Intimate Partner Violence Report. This new hardship withdrawal provides a critical lifeline for those looking to escape their circumstances. The important detail here, of course, is that there must first be a retirement account from which they can take advantage of this provision. This underscores the importance of empowering, educating, and enabling individuals, and in particular women, to contribute to retirement plans as much and as early as possible.
Viewed holistically, the provisions included in Secure Act 2.0 make strides toward helping women save for their retirement. By increasing access to workplace retirement plans and removing barriers to saving, the act is poised to positively impact the retirement prospects of women. With longer life expectancies and the likelihood of career interruptions, women need to be proactive in saving for their retirement, and Secure Act 2.0 takes steps to make it a little easier for women to do so.
