Secure Act 2.0: What the new legislation could mean for you

The SECURE Act, passed in 2019, made changes to a variety of rules regarding retirement accounts. This act was passed in an effort by legislators to reform the current retirement system and allow for Americans to save for retirement in a more effective way. A few of the major provisions enacted by the SECURE Act included pushing the required minimum distribution (RMD) age from 70 ½ to 72, enabling many part-time workers to participate in employer-sponsored retirement plans, and the removal of the stretch IRA. Through these changes, legislators created greater flexibility and accessibility in retirement accounts, which provided much-needed benefits to many Americans.

Just recently, Congress passed SECURE 2.0 as a part of the $1.7 billion omnibus bill. For working and retired Americans, it is important to know what these provisions mean and how they may impact one’s retirement and savings strategy. Listed below are some of the adjustments included in SECURE 2.0.

Provisions effective upon enactment:

  • RMD age increased from 72 to 73 in 2023 for individuals born between 1951 and 1959 – 75 in 2033 for those born in 1960 or later
  • Employer contributions to a defined contribution plan (SIMPLE IRA or SEP) can be after-tax (Roth-like)
  • Employers can incentivize employees to contribute money to a defined contribution plan (ex: gift card)

Provisions effective in 2024 or later:

  • Catch-up contributions to a 401(k), 403(b), or 457(b) plan must be made on an after-tax basis if the employee earns >$145,000 in the previous year
  • Employer can contribute to a plan on behalf of employees who are repaying student loans
  • Roth 401(k) will no longer require RMDs
  • Creates Emergency Savings Account (ESA) – an account within a defined contribution plan that may hold up to $2,500
  • New 401(k) plans – must allow automatic enrollment at 3% contribution rate and no more than 10%
  • Higher catch-up limits indexed for inflation
    • Employees between the ages of 60 and 63 may contribute 50% more than the regular catch-up limit
  • Excess funds in 529 plan may be rolled over to a Roth IRA for the beneficiary of 529 plan
  • Retirement Lost & Found – database that allows individuals to see if they have left funds/benefits in old retirement accounts
  • The maximum annual limit of $100,000 for a Qualified Charitable Distribution will be linked to inflation going forward

Now, this list does not include all provisions included in SECURE 2.0, as there are 92 in total. However, the changes highlighted above indicate the goal of this act, which is to expand coverage and increase retirement savings for Americans. If you have any questions about any of these changes and how it could affect your finances, please reach out to your advisor.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Presented by Jack Russell