Passed and signed into law right around Christmas, the SECURE 2.0 Act enacts a sweeping series of improvements to America’s retirement laws — most of them a vast improvement.
The law amounts to a series of tax cuts and incentives for saving and investment. Here are some of the key provisions:
- The age at which investors must start taking required minimum distributions (RMDs) is going up: to age 73 this year, and to 75 in 2033.
- Congress is slashing the tax on failing to take RMDs by half, from 50% of the distribution you were supposed to take to just 25%. And if you correct the mistake and submit an amended tax return in a timely manner, the penalty is reduced to just 10%.
- Roth accounts in employer retirement plans will no longer have RMDs. You can let them compound tax-free, indefinitely.
- Catch-up contributions for older taxpayers will increase for IRAs, 401(k)s and 403(b)s.
- The catch-up contribution for IRAs, currently $1,000 for taxpayers age 50 and older, will be indexed for inflation.
- The extra catch-up contribution amount for 401(k)s and 403(b)s will increase from $7,500 to $10,000, and will also be indexed for inflation in future years.
Note: If you earned more than $145,000 in the previous year, you must make your catch-up contributions in after-tax dollars and you must make them to a Roth account.
Congress has made it easier to save money for emergencies. Starting in 2024, SECURE 2.0 allows workplace defined contribution retirement plans to add an emergency savings account feature.
Non-highly compensated employees would be able to contribute up to $2,500 per year. The first four withdrawals would be tax- and penalty-free. Contributions would be eligible for an employer match.
Starting in 2027, the government will match 50% of up to $2,000 in employee cash contributions to eligible retirement accounts for workers earning less than $71,000 per year.
Student Loan Assistance Provisions
Beginning in 2024, employers can “match” employee payments on student loans with contributions to retirement accounts, similarly to the way they currently match 401(k) contributions.
After 15 years, assets in Section 529 college savings plans up to a lifetime aggregate limit of $35,000 can be rolled over into a Roth IRA for the 529 beneficiary.
The rollovers will be subject to the annual Roth contribution limit in force at the time of the rollover.
Enrollment and Portability Provisions
Beginning in 2025, sponsors of new 401(k) and 403(b) plans must automatically enroll all new eligible employees at a contribution rate of at least 3% of compensation.
Unless the employee opts out, automatic contributions will increase by 1% until the rate reaches at least 10% (although not more than 15% ). Policymakers hope that this will result in more workers contributing to retirement plans, and fewer workers getting left behind when it comes to retirement security.
All told, SECURE 2.0 has something for retirees and younger workers alike.
For a helpful comparison of the changes before and after the Secure 2.0 Act, reference this link published by Stifel Investment Services. But you may need to take action to realize the full benefits of the new law. Start by calling us so we can help you update your savings, investment and retirement planning.