SECURE Act 2.0 | Updates & Implications
The SECURE Act 2.0 of 2022 is a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 in an effort to help Americans save and prepare for a financially secure retirement.
The updated law expands access to workplace retirement plans and provides new ways to facilitate and protect retirement savings.
When did the SECURE Act 2.0 go into effect?
December 29th, 2022
- Provisions do not have a uniform effective date.
- Several of the provisions are optional and would require plan amendments to implement.
- Future guidelines and clarification rules from the IRS, DOL and Treasury for many provisions will be required.
- The age to start taking RMDs increases to age 73 in 2023 and to 75 in 2033.
- The penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely manner for IRAs.
- Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.
- Catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders.
- Defined contribution retirement plans will be able to add an emergency savings account associated with a Roth account.
Required Minimum Distributions (RMDs)
Effective January 1, 2023, the required minimum distribution age is increased to 73 for individuals who turn 72 after December 31, 2022.
10 years from now, the required minimum distribution age will increase again, to age 75, but only for individuals who turn 74 after December 31, 2032.
Beginning in 2023, the steep penalty for failing to take an RMD will decrease to 25% of the RMD amount not taken, from 50% currently. The penalty will be reduced to 10% for IRA owners if the account owner withdraws the RMD amount previously not taken and submits a corrected tax return in a timely manner.
Beginning in 2024, Roth accounts in employer retirement plans will be exempt from the RMD requirements.
Effective immediately, for in-plan annuity payments that exceed the participant's RMD amount, the excess annuity payment can be applied to the year's RMD.
Mandatory Roth Treatment of Catch-Up Contributions for High Earners
Beginning in 2024, and provided the plan allows catch-up contributions, employees who make more than $145,000 (adjusted for cost-of-living) from their employer may make catch-up contributions to the employer’s plan only as Roth contributions.
Catch-Up Contributions Increase
Beginning in 2025, participants between the ages of 60 and 63 can make catch-up contributions up to $10,000. The regular catch-up amount for people 50 and older in 2023 is $7,500.
Matching for Roth Accounts (Optional)
Effective December 29, 2022, employers can provide employees the option of receiving vested matching contributions to Roth accounts. Previously, matching in employer-sponsored plans were made on a pre-tax basis. Contributions to a Roth retirement plan are made after-tax, after which earnings can grow tax-free.
Qualified Charitable Distributions (QCDs)
Beginning in 2023, people who are age 70½ and older may elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. This is an expansion of the type of charity, or charities, that can receive a QCD. This amount counts toward the annual RMD, if applicable. For gifts to count, they must come directly from your IRA by the end of the calendar year. QCDs cannot be made to all charities.
Other Changes for Annuities
Effective January 1, 2023, the dollar limitation for premiums increases to $200,000 from $145,000 for Qualified Longevity Annuity Contracts (QLACs).
- QLACs are deferred income annuities purchased with retirement funds typically held in an IRA or 401(k) that begin payments on or before age 85. The law also eliminates a previous requirement that limited premiums to 25% of an individual’s retirement account balance.
Individuals That Are Not Nearing Retirement
Automatic Enrollment and Automatic Plan Portability
Beginning in 2025, the legislation requires businesses adopting new 401(k) and 403(b) plans to automatically enroll eligible employees, starting at a contribution rate of at least 3%. It also permits retirement plan service providers to offer plan sponsors automatic portability services, transferring an employee's low balance retirement accounts to a new plan when they change jobs. The change could be especially useful for lower-balance savers who typically cash out their retirement plans when they leave jobs, rather than continue saving in another eligible retirement plan.
Emergency Savings (Optional)
Beginning in 2024, defined contribution retirement plans would be able to add an emergency savings account that is a designated Roth account eligible to accept participant contributions for non-highly compensated employees. Contributions would be limited to $2,500 annually (or lower, as set by the employer) and the first 4 withdrawals in a year would be tax- and penalty-free. Depending on plan rules, contributions may be eligible for an employer match. In addition to giving participants penalty-free access to funds, an emergency savings fund could encourage plan participants to save for short-term and unexpected expenses.
Student Loan Debt (Optional)
Beginning in 2024, employers will be able to "match" employee student loan payments with matching payments to a retirement account, giving workers an extra incentive to save while paying off educational loans.
After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000. Rollovers cannot exceed the aggregate before the 5-year period ending on the date of the distribution. The rollover is treated as a contribution towards the annual Roth IRA contribution limit.
Notes & Disclosures
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