WHAT DOES SECURE 2.0 MEAN FOR ME?
SECURE 2.0 is designed to make retirement savings easier and the process less cumbersome.
WHEN WAS SECURE 2.0 ENACTED?
On December 29, 2022, the Consolidated Appropriations Act of 2023 was signed into law. In essence, this was the budget and funding for the government for 2023. Incorporated into this law (which was over 4,000 pages) is about 300 pages of legislation to make saving for retirement easier through the Strong Retirement Act of 2022, commonly referred to as SECURE 2.0. This nickname is a result of this Act building upon the 2019 Setting Every Community for Retirement Enhancement (SECURE) Act.
WHAT DO I NEED TO KNOW?
Some key provisions of the Act, by date of enactment, are listed below. As always, B&E is your partner, committed to serving you with your interest in mind. If you’d like to discuss how these changes may impact your retirement savings or Plan, please let us know. We’d love to hear from you!
Effective in 2023: |
- Increasing Age for Required Minimum Distributions: Required minimum distributions (RMDs) are now required at age 73 (versus age 72) starting in 2023 and at age 75 starting in 2033.
- Required Minimum Distribution Penalty Cut: The penalty for failing to take a required minimum distribution (RMD) will decrease to 25% of the RMD amount (from 50% currently) and 10% if corrected in a timely manner for IRAs.
- Qualified Charitable Distribution: Individuals can make a one-time $50,000 charitable distribution to a charitable trust or charitable annuity. Starting in 2024, the annual limit of $100,000 will be indexed for inflation.
- Roth SIMPLE and SEP IRAs: Participants can now make Roth contributions to SIMPLE and SEP IRAs.
- Roth Matching Contributions Allowed: Employers have the option to allow the participant to elect to have employer contributions (match or profit sharing) to go into a Roth account. Participants will pay tax on these amounts if they elect this.
- Expanding Tax Credits for Small Business New Retirement Plan: Expanded the current credit from 50% to 100% as well as added new credits for employer contributions of up to $1,000 per employee.
- Hardship Distribution Employee Certification: Employers may now allow employees to self-certify if they have met the conditions for a Hardship Distribution.
- Eliminating Required Notices: Employers are no longer required to send intermittent notices to unenrolled employees provided they at least send an annual reminder of the participant’s eligibility.
Effective in 2024: |
- IRA Catch-Up Contributions: Instead of the flat $1,000 IRA catch-up contributions for those 50 or older, the IRA will be adjusted for inflation each year.
- §529 Plans: Plan assets can be rolled over from a §529 Plan that has been in existence for at least 15 years into a Roth IRA for the beneficiary. This is subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000.
- SIMPLE IRA Contribution Limits: Employee contribution limits go up to 10% (including catch-up contributions) for some Plans. Employer contributions can be raised to a possible match from 2% of compensation to 10% of compensation or $5,000 indexed for inflation, whichever is less.
- Replace SIMPLE IRAs with Safe Harbor 401(k)s: Employers are now allowed to switch from a SIMPLE IRA Plan to Safe Harbor 401(k) Plan any time throughout the year. Previously, this was only permitted at the end of the year.
- Catch-Up Contribution in 401(k) Treated as Roth: If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Those earning $145,000 or less will be exempt from the Roth requirement.
- Roth Plan Distribution Rules: Required minimum distributions will no longer be required from Roth accounts in Employer Retirement Plans.
- Increased Mandatory Distribution Limits: The limit for transferring terminated employee balances into an IRA has increased from $5,000 to $7,000.
- Student Loan Debt: Employers will have the option to treat student loan payments as deferrals and make matching contributions on those amounts.
- Withdrawal for Emergency Personal Expenses: Plans and IRAs may permit one withdrawal per calendar year of $1,000 for unforeseeable or immediate financial need without paying 10% penalty. The participant can repay this amount to the Plan.
- Emergency Savings Accounts: Employers have the option to allow an emergency savings account inside the Plan for non-highly compensated employees. Limited to Roth contributions up to $2,500 and the first four withdrawals from the account each year are penalty-free.
- Domestic Abuse Distributions: Allows Plans to permit distributions of up to $10,000 provided the participant self-certifies a domestic abuse situation. This amount is free from the early distribution penalty and can be repaid within three years.
Effective in 2025 and beyond: |
- Catch-Up Contribution Limits (2025): Catch-up contributions increase for those 60 to 63 years old. The catch-up contribution increase to the greater of $10,000 or 150% of the regular catch-up amount of those age 50 or older.
- Auto-Enrollment and Auto-Escalation (2025): All new 401(k) Plans must automatically enroll eligible employees with a contribution rate of at least 3%, but not more than 10%. This includes an auto increase of 1% per year up to minimum of 10%, but not more than 15%.
- Expanding Coverage for Part-Time and Seasonal Workers (2025): Individuals are eligible to join their employer’s 401(k) Plan as of the earlier of one year of full-time service (1,000 hours) or completion of two years of part-time service (500 hours).
- Retirement Savings Lost and Found (2025): Department of Labor is directed to create a searchable lost and found for participants of Retirement Plans.
- Paper Statement Requirement (2026): Unless a participant elects otherwise, at least one paper benefit statement must be provided annually.
- Saver’s Match (2027): Changes to amount and eligibility of the Saver’s Credit are made. This new provision also changes this from a tax credit to a federal matching contribution into the taxpayer’s IRA or Retirement Plan.
Source: www.finance.senate.gov
This material has been prepared for informational purposes only and is not intended to provide and should not be relied on for legal or tax advice. Any tax or legal information contained herein is of a general nature. You should seek specific advice from your tax or legal professional before pursuing any idea contemplated herein. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness.