Secure Act 2.0

​The 2nd installment of the SECURE Act 2.0 was signed into law almost three years after The SECURE Act 1.0 was approved.  This installment includes more than 90 new retirement plan updates, many of which may not take effect for years.
 
As a quick refresher…SECURE stands for “Setting Every Community Up for Retirement Enhancement”. The initial legislation included just 12 provisions, the major elements being the termination of the “stretch” component of an inherited IRA and increasing the RMD age from 70 ½ to 72.  This bill is more sweeping in scope and unlike its predecessor, it is focused on

• Promoting saving earlier for retirement, as well as increasing some limits
• Boosting incentives for small businesses to offer retirement plans
• Offering those age 60+ more flexibility for saving as they approach retirement

We categorized some of the key provisions according to stage-of-life to make it more meaningful for our readers.  Keep in mind that as these new laws are absorbed into the collective legal and financial conscience, new information will become available which we will share with you. 

Savers (those in the accumulation phase; generally, under age 50)

• All new 401(k) plans must automatically enroll participants to contribute at least 3% (and not more than 10%) and automatically increase contributions 1% per year to 10%-15%. Participants can still opt out. 2025
• The Saver's Credit (for low earners contributing to retirement accounts) is no longer a deduction, but a federally funded match into the account. It can be as much as a 50% match on the first $2,000 contributed (so, $1,000 total) and phases out between $20,500-$35,500 ($41,000-$71,000 MFJ). The match must be repaid to the Treasury if the employee pulls the money out before retirement. 2027
• Employees become eligible to use a 401(k)/403(b) after no more than one year of full-time work (1,000+ hours) or two years of part-time work (500+ hours per year).  Previously it was three years for part-timers. 2025
• Domestic employees can now be provided a SEP IRA by their employers. 2023
• Employees with student debt are permitted to make student loan payments and receive an employer match (if the company matches) when they forgo contributions to a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.”  A qualified student loan payment is broadly defined as any indebtedness incurred by the employee solely to pay qualified higher-education expenses of that employee. Governmental employers are also permitted to make matching contributions in a section 457(b) plan or similar plan with respect to such repayments. 2024

Roth Related Changes

• SECURE 2.0 authorizes creation of SIMPLE and SEP Roth IRA accounts. Previously, these accounts could only hold pre-tax funds.
• Employers will be allowed to make vested matching contributions to employees’ designated Roth accounts.
• SECURE 2.0 allows you to roll over the funds of a 529 account into a Roth IRA after 15 years. The Roth IRA has to be for the beneficiary, and any rollovers will be subject to annual and lifetime contribution limits. Contributions to the 529 plan within the last 5 years (and related earnings) are not eligible to be moved to the Roth. 

Catch Up Savers

• Those who are aged 60-63 will be able to make higher catch-up contributions.  401(k) catch-up contributions for this age group will be greater than the $6,500 for those aged 50-59. The 60–63-year-old savers will be able to put away the greater of $10,000 or 50% more than the current catch-up contribution ($6,500). This also applies to SIMPLE IRAs. (The catch-up right now is only $3,000). 2025 

Retirees

• Starting in 2023 individuals will have to start taking RMDs from their traditional IRAs and traditional 401(k)/403(b)s at age 73. Starting in 2033 that the age will increase to age 75. (See chart below)

          Birth Year ​          Impact of Secure Act 2.0
          <1951                   N/A
          1951-1959           RMD pushed back to 73
          1960+                 RMD pushed back to 75

• The RMD penalty (50% of what should have been withdrawn but wasn't) was just reduced to 25%, starting in 2023.
• Disability payments for retired first responders becomes tax-free. Starts in 2027
• RMDs for Roth accounts in qualified employer plans are eliminated starting in 2024

Business Owners who set up a retirement plan for employees

• The old credit was 50% of startup costs. Now it is 100% of startup costs for businesses with up to 50 employees (phases out from 50-100 employees). The credit is for amounts contributed for employees up to $1,000 per employee and decreases over the first four years of the newly instituted plan. This plan is also available for new employers joining a Multiple Employer Plan (MEP) for the first three years of the MEP. 2023
• The original Secure Act allowed small businesses to band together to pool expenses for 401(k)s in “multiple employer plans.”  This is now available for 403(b)s. 2023
• The new act raises the possible match in a SIMPLE IRA from 2% of compensation (or 3% of compensation, if a match) to 10% of compensation or $5,000 indexed to inflation, whichever is less. 2024 
• SIMPLE IRA/SIMPLE 401(k) contribution limits go up by 10% (including catch-up contributions). If the employer has 26+ employees, the employer must provide a non-matching contribution of at least 3% of compensation (or a matching contribution of 4% of compensation) in order for the plan to qualify for that increase. 2024

And finally,

The SECURE Act 2.0 creates a national searchable lost-and-found online database for forgotten retirement accounts which starts at the end of 2024.

What do I need to do?

For now, review your retirement plan contributions.  More information will become available as employers and financial firms absorb the changes.

If you are nearing retirement, this is a good time to refresh your financial plan.  Many people will need to tap into their retirement accounts before their RMD takes effect.  On the other hand, pushing back the RMD age may create a tax crunch for those who don’t tap into their IRAs sooner.  This is something retirees will want to be aware of, particularly with the convergence of social security benefits, potential IRA inheritances, and other income sources.