What SECURE Act 2.0 Means for Your Retirement

January 10, 2023 - On December 29, 2022, President Joe Biden approved and signed a $1.7 trillion budget bill in law. The budget package includes legislation to make saving for retirement easier through the Strong Retirement Act of 2022, or SECURE Act 2.0. The SECURE Act 2.0 builds upon the changes enacted through 2019’s SETTING EVERY COMMUNITY FOR RETIREMENT ENHANCEMENT (SECURE) Act.

The SECURE Act 2.0 is intended to help American taxpayers more easily contribute and withdraw retirement savings—and make the overall process less cumbersome. Some of the provisions take place immediately, while others will be rolled out over the coming years.

Key takeaways from the SECURE Act 2.0 include the following (year of provision enactment is included in parentheses):

• Roth matching contributions allowed (2022): Employers can allow the match to go into a Roth account. This also includes matching on student loan payments which goes into effect in 2024. The match will be taxable to the employee.

• Required minimum distribution penalty cut (2023): The penalty for failing to take a required minimum distribution (RMD) will decrease to 25% of the RMD amount (from 50% currently) and 10% if corrected in a timely manner for IRAs.
• Required minimum distributions (2023 and 2033): Required minimum distributions are required at age 73 starting in 2023 and at age 75 starting in 2033.
• Roth SIMPLE and SEP IRA’s (2023): Participants can now make Roth contributions to SIMPLE and SEP IRAs.
• Qualified Charitable Distribution (2023): Annual limit of $100,000 is now indexed for inflation, and an individual can make a one-time $50,000 charitable distribution via charitable trust or charitable annuity.
• IRA Catch-up contributions (2024): Instead of the flat $1,000 IRA catch-up contributions for those 50 or older, the IRA will be adjusted for inflation each year.
• Student loan debt (2024): Employers will be allowed to match student loan payments with plan contributions.
• SIMPLE IRA and 401(k) contribution limits (2024): Contribution limits go up to 10% (including catch-up contributions).
• Emergency savings (2024): Employers can establish an emergency savings account for non-highly compensated employees. Contributions would be limited to $2,500 annually, and the first four withdrawals from the account each year are penalty-free.
• SIMPLE IRA increases (2024): Raises the possible match in a SIMPLE IRA from 2% of compensation to 10% of compensation or $5,000 indexed for inflation, whichever is less.
• Withdrawal for emergency personal expenses (2024): Plans may permit one withdrawal per calendar year of $1,000 for unforeseeable or immediate financial need without paying 10% penalty.
• Roth plan distribution rules (2024): Required minimum distributions will no longer be required from Roth accounts in employer retirement plans.
• 529 Plans (2024): Plan assets can be rolled over into a Roth IRA for the beneficiary—subject to annual Roth contribution limits and aggregate lifetime limit of $35,000.
• Improving coverage for part-time and seasonal workers (2025): Individuals are eligible to join their employer's 401(k) or 403(b) plan as of the earlier of 1 year of full-time service (1,000 hours) or completion of 2 years of part-time service (500 hours).
• Auto-enrollment and escalation (2025): All new 401(k) and 403(b) plans must automatically enroll eligible employees with a contribution rate of at least 3%, but not more than 10%. This includes an auto increase of 1% per year up to minimum of 10%, but not more than 15%.
• Catch-up contributions (2025): Higher catch-up contributions are included for those 60 to 63 years old. The catch-up contributions maximum increases to the greater of $10,000 or 150% of the regular catch-up amount of those age 50 or older. If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Those earnings $145,000 or less, will be exempt from the Roth requirement.

 If you have any questions about the SECURE Act 2.0, you can reach out to Karlie Johnson here.