Advisors are going to be faced with new rules under the Secure 2.0 Act this year, warned Joe Buhrmann, senior financial planning consultant at eMoney Advisor, a leading financial planning software, wealth management platform and advisor support firm based in Radnor, Pa.

The changes are designed to encourage investors to save more for retirement and use money in retirement more efficiently. Knowing the impact of the changes on clients can differentiate an advisor’s practice from the competition and provide clients with better retirement plans,  Buhrmann said.

“The best advisors are taking a modern, collaborative approach to planning,” which includes taking advantage of the 2024 changes, and understanding what those changes mean to clients, he said in an email exchange.

For instance, “prior to the Secure 2.0 Act, many who inherited an IRA or other retirement account could have stretched distributions throughout their lifetimes. Now, beneficiaries can no longer stretch these accounts over their lifetimes, and, instead, must distribute funds within 10 years,” Buhrmann said. “The changes are quite convoluted” and require advisors to learn the details.

Another change that will have a big impact on some retiree clients is that under the Secure 2.0 Act, Roth 401(k) funds will no longer face required minimum distributions (RMDs). This will allow workers to keep their funds in employer-sponsored plans following retirement. “This can be seen as a good move, as many employer-sponsored plans offer low fees and a broad array of investment choices,” Buhrmann said.

Other provisions enable employees to take withdrawals that in the past triggered penalties without suffering negative consequences. “Some new waivers to the 10% penalty on pre-retirement distributions were added, including allowing workers to make one withdrawal annually of $1,000 for a personal or family emergency” without the penalty kicking in. In addition, employees may also make withdrawals without a penalty of up to $10,000 if they have experienced domestic abuse, he noted.

“While these withdrawals should be viewed as a method of last resort to cover an emergency expense or bill, recent surveys have shown that 6 in 10 workers would be unable to cover an emergency expense as small as $500,” so the ability to make 401(k) withdrawals is a positive change, he said.

In the past, clients could have been faced with situations where they had few choices. “The SECURE 2.0 Act provides workers additional measures of flexibility for their financial lives,” Buhrmann said.

Likewise, advisors will need to be able to direct clients – whether the clients are employees or employers – in using the changes enacted in the Inflation Reduction Act, most of which took effect in 2023, so they apply to taxes being prepared now.

For example, under the act, employers are able to match employees’ student loan payments through contributions from 401(k) plans. They also can offer emergency savings accounts as part of their 401(k) plan, allowing employees to make after-tax contributions of up to $2,500 annually.

The bottom line is that advisors can add value for their clients by collaborating with clients to determine which new regulations can help their retirement savings, Buhrmann said.