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Legislative Recap: The SECURE 2.0 Act Thumbnail

Legislative Recap: The SECURE 2.0 Act

By: Kyle Ferrare, CFP®, CAIA

The $1.7 trillion budget bill that was signed into law late last year included legislation affecting retirement savings for many Americans. Dubbed the SECURE 2.0 Act, this legislation makes a number of key changes to the rules governing popular retirement accounts including IRAs, 401(k)s, 403(b)s and Roth accounts.

The SECURE 2.0 Act includes more than 100 provisions designed to encourage people to save more money for retirement. The following is a recap of some of the most important provisions of the legislation.

Changes to Required Minimum Distribution (RMD) Rules

Currently, retirees must begin withdrawing funds from their traditional IRAs and 401(k)s when they turn 72 years old, whether they need the money or not. These mandatory withdrawals are known required minimum distributions, or RMDs. In 2023, the age for taking RMDs will increase to 73 years old and in 2033 it will increase to 75 years old.

Planning opportunity: If you turned 72 years old in 2022 or earlier, you must continue taking RMDs as scheduled. If you will turn 72 years old in 2023, you have the option to take advantage of the new RMD rules by updating your withdrawal plan. For example, you can wait until December 31, 2024, or even until April 1, 2025, to take your first RMD.

The penalty for failing to take an RMD you were supposed to take was previously 50% of the amount that should have been withdrawn. In 2023, this penalty is reduced to 25%, or 10% for IRA owners if the correct amount is withdrawn and a corrected tax return is filed in a timely manner.

Starting in 2024, Roth accounts in employer sponsored retirement plans will be exempt from RMDs altogether. This change will mirror the current Roth IRA rules for RMDs. We would note that RMDs from employer-sponsored retirement plans must be made from Roth accounts, until 2024.

Higher Catch-up Contribution Amounts and Roth Matching Contributions

Currently, individuals who are 50 years of age or over can make additional (or catch-up) contributions to their workplace retirement plan of $7,500 annually. Starting in 2025, individuals who are between the ages of 60 and 63 can make catch-up contributions to their workplace retirement plan of $10,000 annually. 

There’s one caveat to the increased catch-up contribution limit: If an individual earned more than $145,000 in the previous calendar year, catch-up contributions must be made in after-tax dollars to a Roth account. 

Starting immediately, employees can receive after-tax matching contributions to their workplace Roth accounts. Until now, matching contributions in employer-sponsored plans were only able to be made pre-tax. 

Changes to QCD Rules

Starting in 2023, individuals who are at least 70½ years of age may elect a one-time gift of up to $50,000 to a charitable remainder unitrust, charitable remainder annuity trust or charitable gift annuity as part of their qualified charitable distribution (QCD) limit. This amount will count toward the individual’s annual RMD. Gifts must come directly from the IRA by the end of the calendar year.

The annual QCD limit of $100,000 will become indexed for inflation.

Increased Flexibility with 529 Plans

The new legislation allows for tax and penalty free rollovers from 529 accounts to Roth IRAs, under certain conditions. The 529 account must have been open for more than 15 years. Additionally, the rollovers will be subject to the annual Roth IRA contribution limits. The rollovers will also be subject to a lifetime limit of $35,000. 

Planning Opportunity: If a 529 plan becomes overfunded, this change provides optionality to repurpose those dollars towards the beneficiary’s future retirement needs.

Automatic Plan Enrollment and Plan Portability Services

Automatically enrolling new employees in a workplace retirement plan has been shown to increase plan participation. So, starting in 2025, businesses adopting new retirement plans will be required to automatically enroll new employees in their 401(k) or 403(b) plan at a contribution rate of at least 3%. 

To reduce the number of lost retirement accounts, the legislation will enable employers to offer plan portability services to employees. These would automatically transfer low-balance retirement accounts to an employee’s new retirement plan when he or she changes jobs. This should help boost retirement savings for young employees who often cash out their retirement savings when changing jobs instead of rolling it over into their new employer’s plan.

The legislation also enables the creation of a searchable data base — or a retirement savings “lost and found” — to help employees find retirement accounts they’ve lost track of at former employers.

Emergency Savings Accounts and Student Loan Repayments

Starting in 2024, defined contribution plans can add a dedicated Roth account to serve as an emergency savings account in which the first four withdrawals annually can be made tax-free and penalty-free. The annual contribution limit to these accounts will be $2,500. 

In addition, an emergency distribution of up to $1,000 can be taken from retirement accounts penalty-free once per year starting next year. 

Also starting in 2024, employers can make matching contributions to employees’ retirement accounts based on how much their student loan payments are. This will incent employees with student loan debt to save for retirement while also paying off these loans.

How Simon Quick Can Help

Give us a call at (973) 525-1000 or send an email to info@simonquickadvisors.com if you have any questions about the SECURE Act 2.0. We can help you figure out how the legislation might impact your personal financial situation and the best ways to take advantage of the provisions.

About Kyle Ferrare 

Mr. Ferrare joined Simon Quick in 2011, and works directly with high net worth clients in developing and implementing their investment and financial planning goals. Based in Denver, CO, Mr. Ferrare also works with single family offices, endowments and foundations and regularly attends investment committee and board meetings. Prior to joining Simon Quick, Mr. Ferrare spent five years in the Private Client Advisor Practice at Deloitte Tax LLP. He provided tax advisory services to a variety of private clients including high net worth individuals, investment partnerships, corporate executives and owners of closely-held businesses. Mr. Ferrare graduated from Bryant University with a BS in Finance. He completed the Financial Planning Certificate Program at Fairleigh Dickinson University in December 2009 and became a CERTIFIED FINANCIAL PLANNER™ practitioner in November 2010. In April 2014, Mr. Ferrare became a Chartered Alternative Investment Analyst (CAIA). To learn more about Kyle visit his LinkedIn.


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