In December 2022, a follow-up package to the Setting Every Community Up for Retirement (SECURE) Act of 2019 was passed. As part of the Consolidate Appropriations Act of 2023, the new SECURE 2.0 Act altered several rules affecting Americans’ retirement savings.
Required Minimum Distribution Changes
The required minimum distribution (RMD) age changed. Before the SECURE 2.0 Act, the age was 72; under SECURE 2.0, it changed to 73 for individuals who reach age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033.It increases to 75 for individuals who reach 74 after December 31, 2032.
Unfortunately, it doesn’t affect people who are due their first RMD under the existing rules on April 1, 2023.
Catch-Up Contributions Increased
Not everyone planned ahead for retirement. Some individuals need to “catch up” on the contributions they should have made into their 401(k), 403(b), and governmental 457(b) plans.Currently, for those 50 years or older, the catch-up maximum contribution limit is $7,500 per year. But the SECURE 2.0 Act changes that.
The maximum contribution has been raised to $10,000. It also now encompasses those who reach the ages of 60–63 during the year to increase their maximum contribution to $10,000. This amount will be indexed in future years.
It allows those creeping into another tax bracket to defer salary for later years.
But for those whose preceding year income exceeded $145,000, catch-up contributions would need to be made on a Roth aftertax basis. This is adjusted for the cost-of-living increases. It is in effect for taxable years beginning Dec. 31, 2023.
Matching Contributions for Student Loans
It started with a letter from the Internal Revenue Service authorizing an employer’s contribution to a 401(k) or 403(b) plan regarding repaying student loans. But now it’s official.Emergency Expense Distributions
Personal emergency expenses that are unforeseeable or an immediate financial need can now be withdrawn up to $1,000. The plan administrator relies on the employee’s certification that the emergency meets the criteria for withdrawal.401(K) Plans Auto-Enrollment
In the past, employers had the option to initiate an automatic enrollment into the retirement plan. But now, effective in 2025, unless the employee chooses not to, the employer is required to enroll the employee into the plan automatically. The amount deferred can be 3–5 percent of an employee’s income.Since most Americans don’t use their workplace retirement plans, the goal is to make it easy for them to participate.
Part-Time Employees Participate in Work Retirement Plans
Beginning in 2025, part-time employees will be able to take advantage of workplace plans quicker. To participate in an employer’s plan, the employee must have worked at least 500 hours for two consecutive years. In the past, it was three years.Savers Match Created
Under the current “savers credit”, lower income individuals can claim a tax credit for contributing to a workplace plan or IRA.Qualified Charitable Distributions Rules Change
Currently, individuals aged 70½ can donate up to $100,000 from a traditional IRA to a qualified charity. This is the qualified charitable distribution. But that will increase in 2024. This increase is based on the inflation rate.529 Plan Rollovers
Before the SECURE 2.0 Act, leftover balances in a 529 education plan had to be taken as a non-qualified distribution. That made the earning portion subject to income tax. It also incurred a 10 percent penalty. But beginning in 2024, individuals will be able to roll up to $35,000 of remaining funds into a Roth IRA.SECURE 2.0 Act Has Many Changes to Retirement Savings
These are just the highlights of some changes. The SECURE 2.0 Act had 92 provisions concerning promoting savings, flexibility for retirement savings, and incentives for businesses.But what they all mean could be up for debate as we wait for an interpretation from the IRS. Check with your financial advisor to see what changes will affect your retirement plans.
