The SECURE Act 2.0

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 company401(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 six total sections that cover everything from retirement savings accounts to savings preservation. Please see notable changes that may impact you below.

Retirement savings (for retirees)

• In 2023, the age where RMDs begin changed from 72 to 73. In 2033, this age will change to 75. If you were born:
  • Before 1/1/1951, your RMDs have already started and nothing changes
  • Between 1/1/1951 and 12/31/1959, then your RMDs must start at age 73 
  • After 1/1/1960, then your RMDs will begin at age 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 of 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.

529 to Roth Rollover

• Allows for 529 plans to be rolled over to Roth IRAs.  
• 529 must be maintained for at least 15-years before the rollover. 
• Roth rollovers limited to the aggregate contributions (and attributable earnings) made at least 5- years before the date of the distribution. 
• Must be a direct, trustee-to-trustee transfer to a Roth IRA account maintained for the benefit of the 529 plan beneficiary. 
• Rollover limited to the $6,000 contribution limit (adjusted for inflation)
  •  Regular IRA contributions reduce eligible 529 rollovers 
  •  Roth income limits don’t seem to apply  
  • Overall aggregate lifetime limit of $35,000 
• Earnings and contributions from the 529 plan carryover for the Roth ordering rules.  
• Effective starting in 2024.

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! We’re here to help. 

By: Kelly Jennings, CFP®, CDAA™

Disclaimer:

This information does not constitute an offer to sell or a solicitation of an offer to buy any securities or investment strategy and is intended for informational purposes only. Investments are subject to market risk, including the loss of principal, and the investment strategies described may not be suitable for all investors. Equities are subject to market risk meaning that stock prices, in general, may decline over short or extended periods. The information contained does not take into account any investor’s specific individual investment objectives, particular needs, or financial situation. Nothing in this material constitutes investment, legal, accounting, or tax advice, or a representation that any investment or strategy is suitable or appropriate.