It’s official – The SECURE Act 2.0 is law.
SECURE stands for Setting Every Community Up for Retirement Enhancement. While 1.0 only introduced about 10 provisions, each one was meaningful. With about 100 provisions, 2.0 is much larger in scope but only a few of the provisions carry much weight.
While all of the changes are focused on retirement, there’s a little something for everyone.
Here are the biggest changes for retirement plans and individual investors.
Retirement Plans
1. Automatic plan enrollment and portability
Starting in 2025, new 401(k) and 403(b) plans will be required to automatically enroll eligible employees at a 3% contribution rate. Retirement plan providers will also be able to automatically transfer low-balance retirement accounts to a new plan when an employee changes jobs.
2. Emergency savings
Starting in 2024, retirement plans can add an emergency savings account for non-highly compensated employees. It will be a Roth (after-tax) account limited to $2,500 in annual contributions with the first 4 withdrawals in a year being tax and penalty-free. Employers will also have the option of making a matching contribution.
3. Student Loans
Starting in 2024, employers can “match” employee student loan payments with matching payments to their retirement accounts.
4. Matching Roth Contributions
Historically, employers have only been able to make pre-tax match contributions to a retirement plan. Now, employers will be able to make vested Roth match contributions for tax-free growth.
5. Special catch-up contribution
Starting in 2025, certain individuals ages 60 through 63 years old can make catch-up contributions up to $10,000, indexed for inflation. This would be in lieu of the current catch-up contribution of $7,500.
With a wrinkle: If you earned more than $145,000 in the prior calendar year, then all catch-up contributions at age 50 or older must be Roth (after-tax) contributions. If you earned $145,000 or less, you are exempt from that requirement.
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Individual Investors
1. Big changes to RMDs
Required starting age:
- If you turned 72 in 2022 or earlier, you need to continue taking your RMDs as scheduled.
- Starting in 2023, the required starting age will rise to 73. If you turned or will be turning 72 in 2023, you do not have to take an RMD distribution.
- Starting in 2033, the required starting age will rise again to age 75.
Starting in 2023, penalties for failing to take an RMD will decrease to 25%, from 50% currently. If the account owner later satisfies the RMD and submits a corrected tax return in time, the penalty will be reduced to 10%.
Starting in 2024, Roth balances in employer retirement plans will not be subject to RMD requirements.
2. 529 Plans to Roth IRAs
529 plan assets can be rolled over to a Roth IRA subject to:
- the 529 plan being in place at least 15 years,
- assets going to the same beneficiary,
- annual Roth contribution limits, and
- aggregate lifetime limit of $35,000.
3. Qualified charitable distributions (QCD)
Starting in 2023, the IRS is expanding the types of charities that can receive a QCD to include charitable remainder unitrusts (CRUTs), charitable remainder annuity trusts (CRATs), or a charitable gift annuity. This expanded list of charities is limited to a one-time gift of up to $50,000, and you must be at least 70 ½.
Conclusion
While SECURE 2.0 includes many well-received rule changes, it also presents new administrative challenges for plan providers and questions for investors. For individual investors, it’s important to take a step back to make sure your current strategy allows you to make the most of all of the new opportunities.
