On December 23, 2022, Congress passed the Secure 2.0 Act into law, as part of a significant $1.7 trillion spending bill. Just like its predecessor, Secure 2.0 includes an extensive list of retirement-related changes designed to expand access to retirement savings accounts and provide more options for contributing to and drawing from these accounts.¹
To help you understand what Secure 2.0 means for you, here are eight significant changes it brings and the impacts they might have:
1. Required Minimum Distributions (RMDs)
One of the most significant changes comes to the way RMDs are handled. Previously, retirees had to begin taking RMDs at 72. Secure 2.0 raised this minimum age to 73 for 2023, and it will increase again to 74 in 2033. Penalties for failing to take an RMD have also dropped to 25%, compared to 50% before.
This provision may benefit those who can afford to hold off on RMD withdrawals because they don’t need access to the funds immediately. So, if you’re turning 72 in 2023 and you’ve already scheduled your withdrawal, you might want to consider making an adjustment to your plan.
2. Retirement Account Catch-Up Contributions
Beginning in 2025, individuals between the ages of 60 and 63 can make catch-up contributions to their 401(k) plans of up to $10,000 or 150% of their regular contributions.
For IRAs, the annual catch-up amount has remained the same since 2006 at $1,000. Starting in 2024, this contribution limit will be indexed to inflation and, therefore, subject to an increase each year.
3. Qualified Charitable Distributions (QCDs)
Secure 2.0 has also expanded the types of charities that can receive a QCD. Individuals who are 70.5 years or older can now give a one-time gift of up to $50,000 to either a charitable remainder unitrust, annuity trust, or gift annuity. However, this money must come directly from your IRA by the end of the year for it to count toward your annual RMD. It’s also important to note that QCDs are not applicable to all charities.
4. 529 College Savings Accounts
Starting in 2024, Secure 2.0 makes it possible for you to move money from a 529 plan directly to a Roth IRA. However, there are a number of conditions you must meet before you can use this provision:
● The maximum lifetime amount you can move is $35,000.
● The annual limit you can move is that year’s IRA contribution limit.
● The beneficiary must have had the 529 plan for at least 15 years.
● The Roth IRA must be under the beneficiary’s name.
● You can’t move any contributions that were made in the last five years.
5. Part-Time Employee Access to Retirement Savings Accounts
Long-term part-time employees can now participate in their employer’s 401(k) plans, provided they meet certain criteria. To qualify for an employer-sponsored retirement plan, you must either:
● Complete one year of service (totaling at least 1,000 hours).
● Or two to three consecutive years of service (with at least 500 hours of service).
For plans beginning in 2025, this three-year rule is reduced to two years.
6. Student Loan Payments
For students who might not be able to save for retirement because they’re paying off student debt, Secure 2.0 allows employers to match employee student loan payments in a retirement account.
7. Automatic Enrollment in 401(k)s
In 2025, businesses adopting new 401(k) or 403(b) plans will be required to automatically enroll eligible employees at a contribution rate of at least 3%. This rule is aimed at increasing retirement savings participation, especially in younger demographics. While employees aren’t required to contribute, they will have to take the extra step of opting out of the program.
8. Emergency Savings
To help people save for unexpected expenses, Secure 2.0 will enable defined contribution plans to add an emergency savings Roth account in 2024. Annual contribution limits are set at $2,500 (or lower, depending on your employer), and may be eligible for an employer match. In addition, the first four withdrawals won’t be taxed or penalized.
Next Steps
SECURE 2.0 brings many changes to the realm of retirement planning, including some that haven’t been addressed here. Consider consulting with an Ausperity Private Wealth team member to determine how these changes might impact you.
Best,
Robert (Rory) J. O’Hara III, CFP®, CRPC®
Founder I Senior Managing Partner
Endnotes
1 “Secure 2.0 Act of 2022.” United States Senate Committee on Finance, December 19, 2022. https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf
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