In the final days of 2022, Congress passed a new set of retirement rules designed to make it easier to contribute to retirement plans and access those funds earmarked for retirement. The law is called SECURE 2.0, and it’s a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019.
The sweeping legislation has dozens of significant provisions, we’ve summarized major provisions of the new law into four sections below.
New Distribution Rules
RMD age will rise to 73 in 2023. By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking required minimum distributions (RMDs). And starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. But if you are turning 72 this year and have already scheduled your withdrawal, you may want to revisit your approach.
Access to funds. Plan participants can use retirement funds in an emergency without penalty or fees. For example, starting in 2024, an employee can get up to $1,000 from a retirement account for personal or family emergencies. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.
Reduced penalty. Also, starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25% from 50%. If you fix the mistake promptly, the penalty may drop to 10%.
New Accumulation Rules
Catch-Up Contributions. Starting January 1, 2025, investors age 60 through 63 can make catch-up contributions of to $10,000, or more, annually to workplace retirement plans. The catch-up amount for people age 50 and older in 2023 is $7,500.
Automatic Enrollment. Beginning in 2025, the Act requires employers to enroll employees into workplace plans automatically. However, employees can choose to opt-out.
Student Loan Matching. In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.
Revised Roth Rules
529 to a Roth. Starting in 2024, pending certain conditions, individuals can roll a 529 education savings plan into a Roth IRA. So if your child gets a scholarship, goes to a less expensive school, or doesn’t go to school, the money can get repositioned into a retirement account. However, rollovers are subject to the annual Roth IRA contribution limit. The 529 account must be open for 15 years and there is a cumulative lifetime transfer limit of $35,000.
SIMPLE and SEP. From 2023 onward, employers can make Roth contributions to Savings Incentive Match Plans for Employees (SIMPLE) or Simplified Employee Pensions (SEP).
Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 403(b)s with Roth Individual Retirement Account (IRA) rules. From 2024, the legislation no longer requires minimum distributions from Roth Accounts in employer retirement plans.
More Highlights
Support for Small Businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100% from 50% for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan.
Qualified Charitable Donations (QCD). Starting in 2024, QCD donations will adjust for inflation. The per person limit for a QCD remains $100,000 for 2023. The limit applies on an individual basis, so for a married couple, each person who is 70½ years old and older can make a QCD as long as it remains under the limit.
Remember that just because retirement rules have changed does not mean that adjusting your current strategy is appropriate. At Heritage, our job is to stay on top of changes to your personal situation as well as changes to legislation, so you don’t have to.
Our checklist can help you see some of the issues to consider given SECURE Act 2.0 changes.
Source: https://www.congress.gov/117/bills/hr2617/BILLS-117hr2617enr.pdf
