Are you worried about unexpected expenses derailing your retirement goals? You’re not alone. Many Americans lack a financial safety net for emergencies, leading them to tap into their retirement savings – a move that can have serious long-term consequences.
Here’s some good news: The SECURE 2.0 Act, enacted in December 2022, introduced a new benefit called Pension-Linked Emergency Savings Accounts (PLESAs). This innovative program aims to help non-highly compensated workers (those earning less than $155,000 in 2024) build a safety net without sacrificing their retirement savings.
How PLESAs Work
PLESAs are emergency savings accounts linked directly to your employer’s retirement plan. This way, you can conveniently save for emergencies while keeping your retirement goals on track. Here’s a breakdown of the key features:
- Automatic Enrollment (Optional): Employers can automatically enroll eligible employees into PLESAs, with contributions set between 1% and 3% of their salary. This “set it and forget it” approach encourages saving without requiring active participation.
- Employee Choice: Don’t worry, automatic enrollment doesn’t mean mandatory participation. You’ll receive written notification before being enrolled and have the right to opt out at any time.
- Contribution Limits: PLESA contributions are capped at $2,500 per year. However, any interest earned above this limit still contributes to your savings. Once the cap is reached, additional contributions are either directed to your Roth account (if available) or paused until the balance falls below the limit.
- Tax Advantages: Contributions to PLESAs are made with after-tax dollars, but withdrawals are typically tax-free, making them ideal for emergency situations.
- Employer Matching: Some employers may match your PLESA contributions, similar to traditional retirement plans. This can significantly boost your emergency savings.
Accessing Your Funds
PLESAs are designed for easy access during emergencies. Here’s what you need to know about withdrawals:
- Penalty-Free Withdrawals: The SECURE 2.0 Act allows for up to four penalty-free withdrawals from your PLESA each year, ensuring you can access your funds when needed most.
- Flexible Rollover Options: When you leave your job, you have the option to take your PLESA balance as cash, roll it over to your Roth IRA, or transfer it to your new employer’s PLESA (if available). This flexibility ensures continuity in your savings journey.
Benefits of PLESAs
PLESAs offer a win-win situation for both employees and employers:
- Employees: Build a safety net for emergencies without impacting retirement savings. Enjoy tax-free withdrawals and flexible rollover options.
- Employers: Enhance employee financial wellness, potentially reducing employee financial stress and absenteeism. Attract and retain top talent by offering a valuable benefit.
Is Your Employer Offering PLESAs?
Check with your HR department to see if your company offers PLESAs. Employers are required to notify employees of their availability.
Taking Control of Your Financial Future
PLESAs are a powerful tool to build financial resilience. By taking advantage of this program, you can address unexpected expenses without jeopardizing your long-term retirement goals. Talk to your employer today to see if PLESAs are available and take control of your financial future!
