Three years after the original SECURE Act was signed into law, we’re seeing some changes with what is being called SECURE Act 2.0, which was signed by President Biden on December 29, 2022. It includes a number of notable provisions that will go into effect in the coming years and have an impact on both individual retirement accounts and employer plans. Anyone planning for retirement should be aware of some key changes. Below is a non-exhaustive list of some of the most relevant features of the law.
Those in or near retirement should be aware of the following:
- SECURE 2.0 further delays the beginning age for taking required minimum distributions (“RMDs”) this year from age 72 to age 73. This provision only applies to individuals who will reach age 72 in 2023 or later, meaning it is not applicable to anyone who reached their RMD age of 72 in 2022. Starting in 2033, RMDs will not be required until age 75.
- Penalties associated with failure to take a RMD have been reduced from 50% to 25% of the amount of the required distribution. For IRAs, the penalty may be further reduced to 10% if the failure is corrected in a timely manner.
- Catch-up contributions have increased. For anyone between the ages of 60-63, beginning in 2025, catch-up contribution limits for 401(k) and 403(b) plans have increased to whichever amount is greater: $10,000 or the equivalent of 150% of the regular catch-up contribution limit.
- The qualified charitable distribution “QCD” limit has increased. Anyone age 70½ and older may elect to make a one-time distribution from a qualified account of up to $50,000 to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. The annual IRA charitable distribution limit of $100,000 will now be indexed for inflation.
Those who are further away from retirement age should note the following:
- SECURE 2.0 includes automatic enrollment for eligible employees into a business’s new 401(k) and 403(b) plan. The initial automatic enrollment amount must be at least 3% of compensation but not more than 10% of compensation. This provision is effective for plan years beginning in 2025 and current 401(k) and 403(b) plans are not subject to the automatic enrollment requirement. Certain businesses are exempt from the automatic enrollment requirement.
- Penalty-free withdrawals from a qualified account are now allowed for certain emergency expenses. There is an exception from the 10% early distribution tax on distributions made for unforeseeable or immediate financial needs relating to personal or family emergency expenses, up to $1,000 and one distribution annually.
- SECURE 2.0 allows up to $35,000 to be converted tax-free from a 529 plan to a Roth IRA. To qualify, the 529 must have been open for at least 15 years and the amount must be moved directly from the 529 plan to the Roth IRA. The transfer is subject to annual Roth contribution limits. This provision affects distributions occurring after Dec. 31, 2023.
- Beginning in 2024, employers can make contributions to an employee’s retirement account that match the employee’s payment of student loan debt.
If you have questions about how these changes will affect your retirement planning, our estate planning team is here to help.