In 2019, Congress passed the SECURE Act, which introduced several changes and enhancements to retirement plan rules. The sequel to the original SECURE Act, the SECURE Act 2.0, was passed on December 29, 2022 and builds on those changes with several more enhancements designed to increase retirement savings opportunities for many Americans.
In our view, the SECURE Act 1.0 and 2.0 updates were long overdue. The new rules recognize that Americans are living and working longer, so stipulations for saving and spending should reflect that.
While the SECURE 2.0 Act includes over 150 changes, the following are those we feel will most impact our clients. Of course, should your life circumstances change, we ask you to let us know in case any of the other changes not listed here might affect your financial plan.
Note: Implementation for each SECURE 2.0 provision varies from being effective immediately, to rolling out in future years. A few even apply retroactively. Many of its newest programs won’t effectively roll out until 2024 or later, giving us time to plan.
- RMD Age Pushed Back (Again)
Three years ago, SECURE Act 1.0 increased the age for taking the required minimum distribution, or RMD, to 72 years from 70½. If you turn 72 this year, the age required for taking your RMD rises to 73 with SECURE Act 2.0.
If you turned 72 in 2022, you’ll remain on the prior schedule.
If you turn 72 in 2023, you may delay your RMD until 2024, when you turn 73. Or you may push back your first RMD to April 1, 2025. Just be aware that you will be required to take two RMDs in 2025, one no later than April 1, and the second no later than December 31.
Starting in 2033, the age for the RMD will rise to 75.
| Birth Year | Impact of SECURE Act 2.0 |
| < 1951 | No impact. |
| 1951-1959 | RMD age pushed back to 73 |
| 1960+ | RMD age pushed back to 75 |
- RMD Penalty Relief
Beginning this year, the penalty for missing an RMD is reduced to 25% from 50%. And 2.0 goes one step further. If the RMD that was missed is taken in a timely manner and the IRA account holder files an updated tax return, the penalty is reduced to 10%.
But let’s be clear, while the penalty has been reduced, you’ll still pay a penalty for missing your RMD.
- Expands Automatic Enrollment in Retirement Plans
The Secure Act 2.0 adds more specific guidelines for employers to implement automatic enrollment in newly established 401(k) and 403(b) plans for eligible employees.
Starting in 2025, companies that set up new 401(k) or 403(b) plans will be required to automatically enroll employees at a rate between 3% and 10% of their salary.
The new legislation also allows for automatic portability, which will encourage folks in low-balance plans to transfer their retirement account to a new employer-sponsored account rather than cash out.
In order to encourage employees to sign up, employers may offer gift cards or small cash payments, like a signing bonus.
Employees can still opt out of the employer-sponsored plan.
- 401(k) Catch-up Contribution Limit Increased for ages 60 to 63
Currently, the catch-up contribution limit for 401(k) plans is $7,500 for plan participants aged 50 and older. Starting in 2025, the SECURE Act 2.0 increases the limit for participants aged 60 to 63, allowing catch-up contributions of $10,000 or 50% above the standard catch-up limit, whichever is greater. After 2025, the new catch-up limit will be indexed to inflation.
Catch-up dollars are required to be made into a Roth IRA unless your wages are under $145,000.
- Various Roth Changes
There were quite a few changes to Roth accounts, including:
- Elimination of RMDs for employer-sponsored Roth accounts, such as Roth 401(k)s and Roth 403(b)s, to align with individual Roth practices. (effective 2024)
- Establishment of Roth versions of SEP and SIMPLE IRAs. (2023)
- Ability for employers to make contributions to traditional and Roth retirement accounts. (2023)
- Ability to move 529 assets into a Roth IRA. (2024)
- For employees who are 50 and older with more than $145,000 (inflation adjusted) in wages from the previous year, they must designate their catch-up elective deferrals as Roth contributions. If the employer doesn’t have a Roth option, then the employee cannot make a catch-up contribution. (2024)
- Exemptions from required Roth contribution for catch-up include self-employed individuals and IRA catch-up contributions. (2024)
If you’ve already begun taking Roth RMDs, you should be able to stop doing so in 2024. What has not changed about Roths, although there’s been talk that it might, is that there are still no restrictions on “backdoor Roth conversions” and similar strategies. Note, there may be a delay in establishing these new types of Roth accounts (SEP and SIMPLE) to allow for custodians and the IRS to implement the necessary rules and procedures.
- Charitable Contributions
Starting in 2023, SECURE 2.0 allows a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. One must be 70½ or older to take advantage of this provision.
The $50,000 limit counts toward the year’s RMD.
It also indexes an annual IRA charitable distribution limit of $100,000, known as a qualified charitable distribution, or QCD, beginning in 2023.
- Back-door Student Loan Relief
Starting next year, employers are allowed to match student loan payments made by their employees. The employer’s match must be directed into a retirement account, but it is an added incentive to sock away funds for retirement.
Additional provisions
- Disaster Relief
You may withdraw up to $22,000 penalty-free from an IRA or an employer-sponsored plan for federally declared disasters. Withdrawals can be repaid to the retirement account.
- Help for Domestic Abuse Survivors
Victims of abuse may need funds for various reasons, including cash to extricate themselves from a difficult situation. SECURE Act 2.0 allows a victim of domestic violence to withdraw the lesser of 50% of an account or $10,000 penalty-free.
- Unused 529 Plan Funds may be Rolled into a Roth IRA
Starting in 2024 and subject to annual Roth contribution limits, assets in a 529 plan can be rolled into a Roth IRA, with a maximum lifetime limit of $35,000. The rollover must be in the name of the plan’s beneficiary. The 529 plan must be at least 15 years old.
In the past, families may have hesitated in fully funding 529s amid fears the plan could wind up being overfunded and withdrawals would be subject to a penalty. Though there is a $35,000 cap, the provision helps alleviate some of these concerns.
Next Steps
The SECURE Act 2.0 can be a game-changer for retirement savers and employers that want to expand saving opportunities. Consult with your financial advisor to ensure any changes introduced by the SECURE 2.0 Act are properly incorporated into your retirement plan.
Resources:
Congress.gov, H.R.2617 – Consolidated Appropriations Act, 2023 (containing Division T – Secure 2.0 Act of 2022), December 29, 2022.
Kitces.com, “SECURE Act 2.0: Later RMDs, 529-to-Roth Rollovers, And Other Tax Planning Opportunities,” Jeffrey Levine, December 28, 2022.
The Street, “How Will SECURE 2.0 Affect You?” Echo Huang, December 29, 2022.
The National Law Review, “SECURE 2.0 Act of 2022 Arrives: (Another) Landmark Retirement Package,” December 23, 2022.
U.S. House Ways & Means Committee, “The Securing a Strong Retirement Act of 2021.”
ASPPA, “It’s Official: SECURE 2.0 Enacted into Law,” Ted Godbout, December 30, 2022.