“If you think taking care of yourself is selfish, change your mind.” Ann Richards
It is no secret that the financial odds are stacked against women. Whether caused by life circumstances outside of their control, unfair perceptions, or chosen priorities, women, on average, have more financial stress to overcome than men. Stress of any kind can take its toll on your health and well-being.
SECURE Act 2.0 continues a push in legislation to address some of the financial stress points that women face. Which of the following new potential stress-reducers might benefit you?
Qualified Plan Eligibility for Long-Term, Part-Time Workers and Military Spouses
Women have historically been significantly more likely to spend time in their career working part-time, which has prevented them from being eligible to participate in retirement plan benefits for significant periods of time. Similarly, women as spouses of military personnel (accounting for some 92% of military spouses, according to the Women’s Bureau of the Department of Labor) who are forced to job-hop as military permanent changes of station (PCS) demand have often endured multiple new eligibility requirements that prevent their participation in retirement plans with their employers.
SECURE 2.0 has taken on these concerns.
- Beginning in 2025, any part-time employees who have accumulated 500 hours of service during 2 consecutive years of service will be eligible to participate in their employer’s retirement plan.
- Employers are now offered tax credits (meaning dollar-for-dollar reductions in their tax bill) when they make military spouses
- eligible for participation in their retirement plan within 2 months of their date of hire,
- immediately eligible for any match or other employer contributions, and
- make those employer contributions immediately vested.
Of course, remembering to participate and take advantage of these new benefits is on women who find themselves in either situation. Make sure you are not leaving free money on the table!
Catch Up with Enhanced Catch-Up Contributions
While not unique to women, increases in allowable qualified plan and IRA contributions in the last years leading up to traditional retirement ages is certainly a good idea for those who are willing to make the sacrifice for their own financial security. SECURE 2.0 added a couple of significant enhancements to the maximum contributions available.
- Qualified plans, such as 401(k)s, 403(b)s, and the Thrift Savings Plan (TSP), have made allowance in the past for catch-up contributions to be made by plan participants, which amount is $7,500 in 2023, which number has been indexed (increased annually) for an inflation-related factor. However, starting in 2025, SECURE 2.0 allows for a super-funded catch-up limit for those aged 60-63 of the greater of $10,000 or $150% of the standard catch-up amount.
- The $1,000/year additional catch-up contributions available to IRA owners age 50 and over will be indexed (increased annually) for an inflation-related factor starting in 2024.
These enhancements can give women an edge if they are able to take full advantage, whether because they found success in their peak earning years, or they have other sources of income they can leverage. In any case, don’t let opportunities like these go without consideration as you make a final push toward your potentially-lengthy retirement.
Delayed RMDs
With a widely understood statistic in mind that women, on average, live longer than men, financial risks tied to longevity are of greater concern for women. Being a significant percentage of retirement savings are held in tax-deferred accounts such as IRAs or qualified plans, the distribution rules tied to those assets are quite meaningful to women. Increased flexibility can allow women to time distributions for when they are needed most.
The original SECURE Act started a trend of delaying Required Minimum Distributions (RMDs) and thus, increasing distribution flexibility, from age 70 ½ to age 72. Now, SECURE 2.0 further delays RMDs from age 72 to age 73 (for those born 1951 through 1957), or to age 75 (for those born 1958 or later).
If there are other sources of income available in the earlier years of retirement, whether from a deferred compensation plan, a business share buy-out, part-time consulting work, or income from a spouse, many women are not needing the money previously required to be pulled from their IRAs; yet, RMDs taken tend to be spent. This has the undesirable outcome of draining tax-deferred accounts early in retirement, making less money available later in life when income is often more necessary for women in particular. Delayed RMDs afford women more control over the timing of their withdrawals and can enhance the chances of their long-term success in retirement.
Caveat: The ability to delay RMDs does not mean you should delay in all circumstances. Work with your Financial Strategist to develop a strategy that works best for your goals and circumstances.
Another reason delayed RMDs can work favorably for women is that the window to take advantage of the potential long-term tax benefits of Roth conversions in the early years of retirement can create tax-free income later in life, which adds further flexibility in planning distributions and driving desired outcomes.
Being there is no one-size-fits-all in retirement planning, everyone wins when flexibility increases. Make sure you have a strategy to benefit from this distribution flexibility that has been extended.
New Flexibility for Victims of Domestic Abuse
According to the Bureau of Justice Statistics 2003 Intimate Partner Violence Report, 85% of intimate partner domestic abuse victims are women. If you or someone you care about is or has been a victim of domestic abuse, SECURE 2.0 has helped pave a financial path to freedom through a new retirement plan provision.
Starting in 2024, victims of domestic abuse are permitted to withdraw penalty-free up to the lesser of $10,000 or 50% of the balance in their retirement plan when used to escape an unsafe situation. There are no approval barriers that could slow the process or deter use of this benefit as the participant may self-certify the need and use of the funds. While not subject to any early-withdrawal penalty, the amount is taxable in the year of distribution. However, the participant may pay the withdrawal back into the plan and recover the tax within 3 years of the distribution.
Financial hardship has often held women hostage in the face of domestic abuse, so this new provision is definitely a step in the right direction. If you come to know anyone in such a circumstance, make sure they are aware of this solution.
Sustainable Financial Health for Maximum Impact
In no matter what life-stage you find yourself today — whether aspiring to retire one day or navigating your retirement already — giving of yourself to those you care most about begins with self-care. Among other components of your well-being, your long-term financial health can either limit or empower your impact. The blessing of long life can be fruitful if you are well-prepared for what lies ahead. A smart, disciplined strategy can reduce your stress and increase your freedom to enjoy life in community with those you love today, tomorrow, and for many years to come.
We’ll help you achieve that.
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