On December 29, 2022, the SECURE Act 2.0 was signed into law by Congress. As you may recall, the original SECURE Act (2019) made several changes that impacted retirees:
- Facilitated small business owners creating “safe harbor” retirement plans.
- Delayed the age that RMDs are required from 70 ½ to 72.
- Opened investment opportunities in 401(k)s (such as annuities).
- Made it necessary for non-spouse IRA inheritors to take distributions that empty the inherited account within ten years.
- Opened up employer retirement savings benefits to part-time employees.
- Gave a $500 tax credit to businesses that set up automatic enrollment in their company 401(k) for employees.
- Allowed 529 Plan funds to pay up to $10,000 annually toward student loans.
- Allowed a penalty-free withdrawal of up to $5,000 for plan participants who are having or adopting a child to offset costs.
The goal of the SECURE Act was initially to encourage retirement savings and make it easier for businesses to support their employees with these types of benefits.
SECURE Act 2.0 also aims to create more retirement savings opportunities for US workers. The Act is broken into 6 sections that cover everything from retirement savings accounts to savings preservation.
We’ll break down a handful of the most notable changes that may impact you.
Retirement savings (for retirees).
- In 2023, the age where RMDs begin changed from 72 to 73. In 2033, this age will change to 75.
- In 2023, the penalty for failing to take an RMD is decreasing to 25% of the RMD not taken (down from 50%).
- Roth accounts in an employer’s plan are exempt from RMDs beginning in 2024.
- In-plan annuity payments that go over a participant’s RMD can be put toward their RMD.
- Starting in 2023, investors aged 70 ½ can make a QCD distribution of up to $50,000 as a one-time gift to a unitrust, a charitable remainder trust, or a charitable gift annuity.
For employees (not yet retired).
- Plan sponsors (employers) can link emergency savings accounts to individual account plans.
- All new 401k and 403b plans must have an automatic enrollment feature ranging from 3-10%.
- Employers/plan sponsors can treat “qualified student loan payments” as elective deferrals for matching contributions to an employee’s retirement account.
- Higher catch-up contributions are allowed for individuals from 60-63 years old. Catch-up contribution limits for this age group will increase to $10,000/year in January 2025, with some exceptions. If you earn over $145,000 per year, catch-up contributions made after age 50 must be made to a Roth account.
- Employers can provide contribution matching to Roth accounts.
These are a few critical changes implemented by the SECURE Act 2.0. If you have additional questions, you can get the complete overview of the SECURE Act 2.0 on the Senate’s website here. If you have any questions regarding changes from the SECURE Act 2.0, don’t hesitate to reach out!