How the SECURE 2.0 Act Affects Your Retirement

Saving for retirement is important – this is the money you’ll likely utilize throughout your golden years. To help you make the most of your retirement plan, it’s beneficial to understand new laws and how they affect your retirement savings so you can use these legislative changes to your advantage. On Dec. 29, 2022, the SECURE 2.0 Act was passed into law.

Here’s what you should know about how the law impacts your retirement plan and contributions:

There are many varying types of retirement plans out there, but most require minimum distributions. One of the most notable changes the legislation signed into effect was the increase of the Required Minimum Distribution (RMD) age to 73. This allows more time to move one’s assets to a Roth IRA, which has no RMDs during the owner’s lifetime. Additionally, the annual penalty for failure to take an RMD was decreased from 50% to 25%.

Changes by Type of Plan:

Roth IRAs

Catch-Up Contributions:

• All qualified catch-up contributions by employees with compensation of $145,000+ (indexed) will be subject to Roth tax treatment beginning in 2024.
• Catch-up distribution limits for those ages 50 and up will be inflation indexed after 2023.

Employee/Employer Contributions:

• SEP Roth IRAs are now allowed to accept employee and employer Roth contributions.
• Employees can now choose whether employee matching or nonelective contributions are made on a Roth vs. pretax basis.

RMD:
The RMD within employer plans will be eliminated beginning in 2024.

SIMPLE IRAs

Catch-Up Contribution Limits:
Catch-up distribution limits for those ages 50 and up will be inflation indexed after 2023.

Employee/Employer Contributions:

• Now allowed to accept employee and employer Roth contributions.
• Employers will be allowed to make additional contributions into employee’s accounts up to 10% (maximum of $5,000, indexed) starting in 2024.

Student Loan Payment Match:
Employer match will be available for contributions to be used to repay an employee’s student loan balance starting in 2024.

401(k)s and 403(b) plans

Auto-enrollment:
These plans will be required to automatically enroll eligible participants unless the employee opts out. This includes employers in business for three or more years with 11+ employees.

Catch-Up Contribution Limits:
Catch-up limits will increase to $10,000 for individuals between the ages of 60-63 beginning in 2025.

Contributions:
FOR 401(k) PLANS ONLY: During the first year of a new solo 401(k) plan, certain deferral contributions can now be made up until the tax return filing date.

Starter Plans:
Starter plans are now available for employers without retirement programs. These plans will default to a 3% to 15% deferral rate starting in 2024.

Student Loan Payment Match:
Employer match will be available for contributions to be used to repay an employee’s student loan balance starting in 2024.

457(b) plans

Deferral Changes:
Deferral changes can now be made any time prior to the date that the compensation being deferred is available.

Student Loan Payment Match:
Employer match will be available for contributions to be used to repay an employee’s student loan balance starting in 2024.

Special Circumstances

Part-time Employees

Employers are now required to offer employer-sponsored retirement plans to part-time employees in 2024.

Birth or Adoption

The distribution payback period for qualified birth and adoption expenses is now restricted to three years.

Terminally Ill

These individuals are exempt from the additional 10% tax on early distributions.

Special Needs

Trusts created for qualified disabled individuals are tax-free when used for qualified disability expenses.

Hardship

• Self-certification is now available for hardship withdrawals.
• The 10% tax on early distributions will be waived for unexpected personal or family emergency expenses.

Victims of Domestic Abuse

Survivors can now withdraw the lesser of $10,000 (indexed for inflation) or 50% of their retirement account penalty-free. The funds can be repaid over three years with an additional refund for taxes paid on the distribution beginning in 2024.

The SECURE 2.0 Act paves the way for big changes within the American retirement system. Whether you’re close to retirement, a seasoned professional in your career or just starting out, the new legislation has something for everyone. To learn more about how these changes affect your retirement savings, reach out to our investment team today.