Brent Thoman | February 1st, 2023
Just before the new year, President Biden signed the omnibus spending bill into law. Within the bill is the SECURE Act 2.0 (Securing a Strong Retirement Act), which is aimed at making it easier to save for retirement. While the law was signed at the tail end of 2022, many provisions won't go into effect until 2024. These are 9 key takeaways from the SECURE Act.
Employees wishing to participate in an employer's 401(k) or 403(b) plan must enroll. Under the SECURE Act, enrollment will be automatic, with a minimum 3% contribution increasing each year to at least 10% but not more than 15%. Employees do not have to participate but will have to opt out if they don't wish to partake.
There are some exceptions for small businesses.
Student Loan Matching
One of the reasons people may not choose to enroll in their employer's 401(k) or 403(b) plans is that they can't afford to after making their student loan payment. The SECURE Act will address this.
Beginning in 2024, employers can contribute to an employee's plan even if the employee is not contributing but is making qualified student loan payments. This isn't mandatory; employers can choose to contribute but are not required to.
Eligibility for Part-Time Employees
Part-time employees with two consecutive years on the job or at least 500 hours are eligible to participate in their employer's 401(k) or 403(b) plans.
Nearly half, 49%, of Americans don't have enough cash savings to cover a $400 unexpected expense. That can lead to high-interest debt as people turn to credit cards or payday loans. The SECURE Act gives people another, less costly way to cover an emergency expense.
Starting in 2024, eligible plan participants will be allowed to withdraw up to $1,000 once a year without the usual penalty and 10% tax that usually applies to early withdrawals. If the withdrawal isn't paid back on time, participants will be barred from taking another emergency withdrawal for three years.
Increased Catch-Up Contributions
Those aged 50 and over can make additional contributions to eligible retirement plans. Starting in 2025, these catch-up contributions will be increased to $10,000 per year or 50% more than the regular catch-up amounts, whichever is greater for those who turn 60, 61, 62, or 63 during a given year. Beginning in 2026, these limits will be indexed for inflation.
Starting in 2024, the IRA catch-up limits will also be indexed for inflation in increments of $100.
Beginning in 2024, excess money in 529 accounts that isn't needed for educational expenses can be rolled over without penalty to a Roth IRA with a $35,000-lifetime cap and subject to regular, annual Roth contribution limits.
The 529 plan and Roth must be owned by the same person and open for at least 15 years.
RMD Age Increased
RMDs are required minimum distributions, a mandatory withdrawal from employer-sponsored retirement accounts, and traditional IRAs. Beginning January 1, 2023, the age to take RMDs increases from 72 to 73. In 2033, the age will increase to 75.
RMD Penalties Reduced
Prior to the SECURE Act 2.0, the penalty for failure to take RMDs was 50% of the undistributed amount. Beginning in 2023, that is reduced to 25%. The penalty drops to 10% if the necessary RMD is taken by the end of the second year following the year it was due.
Starting in 2024, QCDs (qualified charitable distributions) will be expanded to allow a one-time $50,000 distribution to certain split-interest giving trusts. The $100,000 IRA QCD will be indexed for inflation.
If you have questions about how the SECURE Act impacts your financial plan, coreVISION is here to help.