With American families under financial pressure, many living paycheck to paycheck, many would be unable to afford a financial emergency. Thanks to the SECURE 2.0 Act, there’s a way to cover expenses without going into deeper debt.
The SECURE 2.0 Act (Setting Every Community Up for Retirement Enhancement Act) was signed into law. It expands the ways a 401(k) can be used and how retirement accounts work.
SECURE 2.0 Act’s Provisions
The SECURE 2.0 Act automatically enrolls employees into 401(k) programs and 403(b) plans as soon as workers become eligible. This helps employees save up for retirement — even is they might otherwise overlook it. Employees will be automatically enrolled starting January 1, 2025.
Mandatory automatic enrollment is one of the law’s parameters, but others also affect how people view and manage their retirement plans. One of the key tenants of the act is the tax exemption for people who need to borrow money from their retirement plans in an emergency.
The IRS now allows individuals to withdraw up to $1,000 — tax-free — to cover approved emergencies, such as medical bills, car repairs, funerary expenses, adoption of a child, giving birth, and home repairs.
The law doesn’t just make a one-time exception, either. You can withdraw the funds once every three years, or annually, if the previous borrowed amount is repaid by the time of the next request. The IRS also notes that employers now get small financial incentives to encourage employees to participate in retirement accounts.
401(k) matching is one of the most common ways people save for their retirement. Per IRS rules, the contributions employers pay into a 401(k) or a 403(b) account through matching is not subject to federal taxes.
Survivors of domestic abuse are also given a new springboard. The SECURE 2.0 Act also allows domestic violence victims to withdraw up to $10,000 from their retirement accounts without a tax penalty. Once the money is borrowed, borrowers can pay it back within three years for a refund.
Relief For Difficult Economic Times
The new law offers households throughout the United States a new level of relief during tough economic times. According to Bankrate’s 2024 Annual Emergency Savings Report, 59 percent of Americans are uncomfortable with their emergency savings.
The same survey noted that approximately one in every four people have no emergency savings. Moreover, a third of all Millennials having no extra savings whatsoever. The same study noted that 56 percent of all Americans would not have enough money to cover a $1,000 surprise bill.
Related: Americans Have More Than $1.1 Trillion In Credit Card Debt
While most financial advisors advise against borrowing from 401(k)s, some circumstances are not always within control. If borrowing from a retirement account helps keep a roof over your head, no one can argue with that logic.
As with all things financial, it’s best to discuss your fiscal situation with a financial advisor.
Related: Boomers Are Struggling To Retire
