The Secure 2.0 Act will help Americans bolster their retirement savings and reinforce their long-term financial security. The common-sense solutions in the bill will help encourage employees to save for their retirement and to help ensure that savings will last a lifetime.
Key provisions include:
- Increasing tax credits to promote the establishment of retirement plans,
- Expanding the use of multiple-employer plans to unrelated businesses,
- Stretching plan eligibility to long-term part-time employees,
- Repealing age limitations for IRA contributions,
- Modifying “stretch” rules for most non-spousal beneficiaries, and
- Encouraging employers to offer guaranteed lifetime income options in their retirement plans.
Secure 2.0 Act Highlights
- Increase in Required Minimum Distributions (RMD) Age
The RMD age is 73 in 2023; the age will be 75 in 2033.
- Increased Catch-Up Contributions for Retirement Plans and IRAs
The current catch-up contribution limit for those over 50 is $7,500. Beginning in 2025, catch-up contributions for people aged 60-63 will increase to the greater of $10,000 or 50% more than the regular catch-up contribution in 2024. Catch-up contributions will be indexed for inflation beginning after 2025. Catch-ups for IRAs for 50-year-olds will be indexed for inflation starting in 2024. - Expanded Roth Contributions
Roth contributions will now be allowed for SIMPLE and SEP IRAs. Employer contributions and employee elective deferrals (if permitted) can be designated as Roth contributions. - Roth Catch-Up Changes
For those with incomes exceeding $145,000, catch-up contributions will be designated as Roth contributions. - No More RMDs for Roth 401(k) Accounts
Starting in 2024, required distributions will no longer need to be taken from Roth 401(k) accounts. - 529 Plans Can Rollover into Roth IRAs
Beginning in 2024, beneficiaries of 529 plans can roll up to $35,000 into a Roth IRA during their lifetime. The rollovers will be subject to annual contribution limits and the 529 plan must have been open for more than 15 years. - Expansion of 401(k) Automatic Enrollment Policies
Starting in 2025, 401(k) and 403(b) plan participants will automatically be enrolled in a plan once they are eligible to participate. The initial contribution will be at least 3% of the salary, and each year, contributions would increase by 1% until a goal of 10% is reached, without exceeding 15%. - Emergency Savings Accounts
In 2024, employers will be able to establish an emergency savings account where employees can save up to $2,500 in a Roth-style account. Distributions will be treated like a qualified distribution from a Roth account (tax-free, if requirements are met). - Exemption from Early Distribution Penalties for Certain Emergency Expenses
In case of financial hardship, up to $1,000 may be withdrawn per year, penalty-free, from a 401(k) or IRA. The employee has the option to repay the distribution within three years. No further distributions will be permitted until the distribution is paid back in full. - Modify the Saver’s Credit
To encourage savings for those with low to moderate incomes, an eligible individual who makes a qualified savings contribution will be allowed a matching contribution. Starting in 2027, the government will provide a 50% credit on savings up to $2,000. Credit is available regardless of whether the taxpayer has an income tax liability. - Student Loan Matching
Student loan payments will be treated as an Employee Elective Deferral for the purpose of matching contributions. - QLAC Contributions
Up to 200,000 can be contributed to a qualified longevity annuity contract (QLAC). The prior 25% of the income limit is eliminated. - Reduced RMD Excise Tax
Reduced excise tax for failure to take required distributions will decrease from 50% to 25%. - Expanded Qualified Charitable Distributions (QCD)
The QCD rules are now expanded to allow for a one-time $50,000 distribution to a charity through a split-interest entity, including charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. Beginning in 2024, the $100,000 annual limit on QCDs will be indexed for inflation. - Annuities in 401(k) Plans
Removal of barriers to the use of annuities in qualified plans by exempting certain annuity features from actuarial tests that would otherwise prohibit their use. - Retirement Savings Lost and Found
The Labor Department will create a national online searchable lost and found database.
Questions?
If you want to chat about the impact this might have on you, give me a call. Let’s talk through it together.
