SECURE Act 2.0: An Overview
In the latter days of 2022, lawmakers in Washington, D.C., established a set of retirement laws that made it easier to put money into and withdraw money from retirement accounts.
A sequel to the 2019's Setting Every Community Up for Retirement Enhancement (SECURE) Act, this new law is known as SECURE 2.0.
Here are the most important parts of the vast Act, which includes dozens of important measures.
New Distribution Rules
The age at which a person must begin receiving their RMD is increasing, reaching 73 in 2023. Increasing the age at which account holders are required to begin taking RMDs was one of the most significant adjustments. Also, RMDs may commence at age 75 beginning in 2033. Once you reach the age of 72, you are required to keep receiving distributions. If this is the year you turn 72 and you've already planned your withdrawal, though, we might want to reconsider. 1
Having easy access to money. In the event of an unexpected financial crisis, plan members can access their retirement savings without incurring any penalties or additional expenses. Starting in 2024, for instance, workers will be able to withdraw $1,000 from their retirement accounts to use for unexpected expenses. Surviving domestic violence or a terminal disease qualify you for further emergency measures. 2
In other words, the punishment has been lowered. The penalty tax for failing to take an RMD lowers from 50% to 25% in 2023. The penalty could be reduced to 10% if the error is corrected quickly. 3
New Accumulation Rules
Extra payments made to catch up. Investors aged 60–63 will be eligible to make yearly catch-up contributions to employment retirement plans of up to $10,000 starting on January 1, 2025. Age 50 and up receive a $7,500 "catch-up" payment in 2023. However, those with yearly incomes over $145,000 are subject to additional restrictions under the law. 4
Continually enrolling students automatically. Automatic enrollment in workplace plans will become mandatory for companies in 2025 under the Act. Employees have the option to decline, though. 5
Comparable student loans Company-matched retirement contributions for employee repayment of college loans will become available in 2024. The new regulation provides a further incentive for workers to save for retirement and pay down their college debt. 6
Revised Roth Rules
Swap your 529 for a Roth IRA. Under certain circumstances, people will be able to convert their 529 college savings plans into Roth IRAs beginning in 2024. (IRA). As a result, you can redirect the funds to a retirement account if your kid gets a scholarship, attends a less expensive institution, or doesn't go to college at all. The yearly Roth IRA contribution limit still applies to rollovers, though. In order to take earnings from a Roth IRA tax-free and without incurring a penalty, the account must have been held for at least five years and the beneficiary must be over the age of 59 1/2. In some cases, such as the owner's death, withdrawals are permitted without tax or penalty. The first person to own a Roth IRA has no obligation to take annual withdrawals. 7
Roth contributions to employee savings incentive match plans (SIMPLE) or simplified employee pension (SEP) plans will be permitted beginning in 2023. (SEP).8
Roth IRAs and Roth 401(k)s and 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 403(b)s with Roth IRA rules. The law mandates that employer retirement plans with a Roth IRA component must no longer take required minimum distributions beginning in 2024. 9
More Highlights
Assistance for newly formed or established small companies. A larger credit will be available in 2023 to aid with retirement plan setup and administration fees thanks to the new law. Small enterprises (those with 50 workers or less) receive a full credit, up from 50%. Legislators think that by increasing the credit, they can remove one of the biggest obstacles for small firms providing a workplace plan. 10
Donations that meet certain criteria are considered qualified charitable contributions (QCDs). QCDs will be index-linked beginning in 2023. In the case of a married couple, any member 7012 or older can make a QCD so long as the total amount does not exceed the limit. 11
The new retirement regulations do not necessitate a change in approach. If you make a modification to one retirement asset, it may be necessary to make a corresponding adjustment to another.
In addition, there is no assurance that the application of particular rules will remain the same, and retirement rules can change unexpectedly. This article's goal is to provide a high-level summary of SECURE 2.0. Please seek professional help instead of relying on this. If adjustments are warranted, your reliable financial advisor can lay out a strategy in consultation with your tax and legal advisors.
1. Fidelity.com, December 23, 2022
2. CNBC.com, December 22, 2022
3. Fidelity.com, December 22, 2022
4. Fidelity.com, December 22, 2022
5. Paychex.com, December 30, 2022
6. PlanSponsor.com, December 27, 2022
7. CNBC.com, December 23, 2022
8. Forbes.com, January 5, 2023
9. Forbes.com, January 5, 2023
10. Paychex.com, December 30, 2022
11. FidelityCharitable.org, December 29, 2022