Secure 2.0 Act

What is the SECURE 2.0 Act?

In December of 2022, the Secure 2.0 Act was signed into law as part of the 2023 Omnibus spending bill. The legislation resulted in a revised set of retirement rules with the primary goals of increasing retirement savings and to generally make qualified retirement plans more “user friendly” and accommodating to participant needs. 

Some key provisions are:

• Improved catch-up contributions for IRAs, 401(k)s and 403(b)s for participants aged 60 to 63.
  • Participants aged 60 to 63 will now have a catch-up contribution equal to the greater of $10,000 or 150% of the standard catchup contribution for 401(k)s, 403(b)s and IRAs (which will now be increased for inflation).                              
• Beginning in 2023, SIMPLE IRAs and SEP IRAs will be able to include a Roth option.                                                                                                                                                     
• Beginning in 2024, in certain circumstances, unused 529 plan funds may be rolled over to a Roth IRA.
  • The plan must have been open for at least 15 years.
  • Contributions made within the last 5 years are not eligible for rollover.
  • The rollovers are subject to the annual Roth IRA contribution limit.
  • A lifetime rollover transfer limit of $35,000.                                                                                                                                   
• Required minimum distribution (RMD) age increases.
  • As of January 1, 2023, if you are not yet age 72, the RMD age is now 73. 
  • In 2029 the RMD age will become age 74 (if age 73 after 12/31/28) and 75
  • In 2033 the RMD age will become age 75 (if age 75 after 12/31/32).                                                                                                                  
• Required minimum distributions (RMDs) will not have to be taken from Roth 401(k)s and Roth 403(b)s (workplace Roth accounts).
  • Prior to the passage of the act, RMDs were required from workplace Roth accounts. This was unlike individual Roth IRAs which did not require an RMD. Beginning in 2024, RMDs will not be required from workplace Roth accounts.                                                                                                                        

• Smaller penalties for missed required minimum distributions (RMDs).
  • Starting in 2023, the penalty for missed RMDs is reduced from 50% of the missed amount to 25% of the missed amount.                                                                                                                                                                                                              
• Access retirement funds for emergencies 
  • Beginning in 2024, you will be able to withdraw up to $1,000 from a retirement account for personal or family emergencies without the 10% penalty for premature withdrawals from a retirement plan. (The distribution will be subject to regular income tax if it was taxable.) You will have the option to repay the withdrawal within 3 years. You’re only allowed one up to $1,000 distribution per year, but no other emergency distribution exceptions would be allowed in the three-year period following the date of distribution, unless the full amount of the original distribution was repaid, or the participant has subsequently contributed an amount equal to the withdrawal. Please note that this provision is optional for a plan sponsor to add to the plan.
  • Individuals suffering from a terminal illness will be allowed to take unlimited amounts from their retirement accounts without the 10% penalty.
  • Survivors of domestic abuse can withdraw up to the lesser of $10,000 or 50% of their account balance without the 10% penalty for various reasons relating to the domestic abuse. The withdrawal must be within 1 year of the incident giving rise to the domestic abuse. The withdrawal can be repaid within 3 years following the withdrawal and taxes paid would be refunded on amounts repaid.                                                                                                                                                               
• Automatic enrollment in a workplace retirement plan.
  • Beginning in 2025, employers will be required to automatically enroll employees in their workplace plans, starting with a minimum contribution rate of 3%. A participant will be allowed to opt out of the contribution if they desire.                                                                                                                                               
• Beginning in 2024, student loan payments can be considered for employers matching retirement contribution purposes.
  • To encourage the repayment of student loans, payments made on student loans will now be considered the same as contributions to workplace plans for the purpose of employer matches.                                                                                   

The above is a very basic summary the Secure Act 2.0. As the saying goes “The devil is in the details.” 

If you would like to explore any of the above provisions in greater detail, please do not hesitate to contact us.

Scott LaValley

Managing Director – Financial Planning

Baldwin & Clarke Advisory Services, LLC

Email: scottlavalley@baldwinclarke.com