Written by Kevin P. Gilmore
From the Director
Whatever you may think of the federal government’s late December 2022 passage of the $1.7 trillion omnibus budget package, it included legislation our industry has been referring to as “SECURE 2.0.” Provisions now written into federal law will affect our 403(b) Nazarene Retirement Savings Plan (Plan) for years to come. This article is intended to provide an overview of some of the more significant changes which may be of interest to you.
Student Loan Debt – High student loan debt is often a barrier to saving for retirement. Beginning in 2024, the new law allows student loan payments to be treated as elective deferrals for matching benefits purposes. This provision allows employees to receive matching contributions in their retirement plan for payments they make towards their student loans.
If your employer currently matches your contributions to the Plan, you will be able to shift all or a portion of those personal contributions toward your student loan debt and continue to benefit from your employer match to the Plan. If your employer does not currently provide matching contributions, take time over the coming months to implement a plan to make this happen. This will allow you to eliminate your debt more quickly while accumulating funds in your 403(b) retirement account. You may then shift your focus to investing more of your own funds towards retirement as you are able. Our record-keeper, Fidelity Investments, already has a process in place to help you facilitate this, and Pensions and Benefits USA is currently evaluating how we may implement this into our Plan incentive program for 2024.
Saver’s Credit Changing to a Match – The federal government has provisions in place that allow low- and middle-income workers to use a nonrefundable tax credit based on contributions to qualified retirement accounts. If you meet the eligibility requirements, the Saver’s Credit is either 10%, 20%, or 50% of the first $2,000 ($4,000 for joint filers) you contribute. The percentage is based on the level of adjusted gross income reflected in your federal tax return. Because it is non-refundable, it can only reduce federal income tax liability, at most, to zero.
Beginning in 2027, the new legislation replaces this credit with a federal matching contribution that is deposited directly into your retirement account (unless it's less than $100), and the amount deposited will not count towards annual contribution limits. The match is simplified by being 50% of the first $2,000 contributed to eligible retirement accounts, which includes Roth, but the match cannot be deposited to a Roth account. Otherwise, you will be able to direct which retirement account receives the federal match.
There is time to plan for this new match program, but in the interim don’t miss out on the opportunities to take advantage of the current Saver’s Credit tax credit program if you are eligible.
Required Minimum Distributions (RMDs) – Effective in 2023, the age for mandatory distributions for participants has been moved from 72 to 73, and will increase to age 75 in 2033. Starting in 2024, RMDs will no longer be required for Roth funds held in our Plan.
Catch-Up Contributions – Current rules allow participants who reach age 50 to make additional “catch-up” contributions to their Plan account. While this is not used by most of our participants, a rule change effective in 2025 raises the allowable amounts at various ages, but also requires they be made as Roth contributions, which means from after-tax dollars (i.e., the pre-tax benefit treatment is eliminated). Fortunately, they have also instituted an exemption for the Roth requirement for employees whose compensation does not exceed $145,000 per year, and this income threshold will adjust for inflation going forward.
While some of these provisions don’t take effect until next year or later, I encourage you to meet with your financial and tax advisors to determine how they will affect you. Also, be certain you are maximizing current benefit possibilities, and make plans to meet with your employer to discuss how they may be able to assist.
Kevin P. Gilmore serves as executive director of Pensions and Benefits USA for the Church of the Nazarene.