SECURE Act 2.0: An Overview
In the final days of 2022, Congress passed a new set of retirement rules designed to make it easier to contribute to retirement plans and access those funds earmarked for retirement.
The law is called SECURE 2.0, and it's a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019.
The sweeping legislation has dozens of significant provisions, so to help you see what changes may affect you, I broke the major provisions of the new law into four sections.
New Distribution Rules
RMD age will rise to 73 in 2023. By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking required minimum distributions (RMDs). And starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. But if you are turning 72 this year and have already scheduled your withdrawal, we may want to revisit your approach.1
Access to funds. Plan participants can use retirement funds in an emergency without penalty or fees. For example, starting in 2024, an employee can get up to $1,000 from a retirement account for personal or family emergencies. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.2
Reduced penalty. Also, starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25% from 50%. If you fix the mistake promptly, the penalty may drop to 10%.3
New Accumulation Rules
Catch-Up Contributions. Starting January 1, 2025, investors aged 60 through 63 can make catch-up contributions of up to $10,000 annually to workplace retirement plans. The catch-up amount for people aged 50 and older in 2023 is $7,500. However, the law applies certain stipulations to individuals earning more than $145,000 annually.4
Automatic Enrollment. Beginning in 2025, the Act requires employers to enroll employees into workplace plans automatically. However, employees can choose to opt-out.5
Student Loan Matching. In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.6
Revised Roth Rules
529 to a Roth. Starting in 2024, pending certain conditions, individuals can roll a 529 education savings plan into a Roth IRA. So if your child gets a scholarship, goes to a less expensive school, or doesn't go to school, the money can get repositioned into a retirement account. However, rollovers are subject to the annual Roth IRA contribution limit. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. Tax-free and penalty-free withdrawals are allowed under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.7
SIMPLE and SEP. From 2023 onward, employers can make Roth contributions to Savings Incentive Match Plans for Employees or Simplified Employee Pensions.8
Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 403(b)s with Roth Individual Retirement Account (IRA) rules. From 2024, the legislation no longer requires minimum distributions from Roth Accounts in employer retirement plans.9
More Highlights
Support for Small Businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100% from 50% for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan.10
Qualified Charitable Donations (QCD). From 2023 onward, QCD donations will adjust for inflation. The limit applies on an individual basis, so for a married couple, each person who is 70½ years old and older can make a QCD as long as it remains under the limit.11
Remember that just because retirement rules have changed does not mean that adjusting your current strategy is appropriate. Each of your retirement assets plays a specific role in your overall financial strategy, so a change to one may require changing another.
Also, retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article intends to give you a broad overview of SECURE 2.0. It's not intended as a substitute for real-life advice. If changes are appropriate, we will outline an approach and work with your tax and legal professionals, if applicable.
- https://www.fidelity.com/learning-center/personal-finance/secure-act-2
- https://www.cnbc.com/2022/12/22/emergency-savings-proposals-in-secure-2point0-may-boost-financial-security.html
- https://www.fidelity.com/learning-center/personal-finance/secure-act-2
- https://www.fidelity.com/learning-center/personal-finance/secure-act-2
- https://www.paychex.com/articles/compliance/secure-act-changes
- https://www.plansponsor.com/student-loan-match-can-start-one/
- https://www.cnbc.com/2022/12/23/tax-free-rollovers-from-529-plans-to-roth-iras-may-be-allowed-in-2024.html#:~:text=Investing%20Club-,Families%20can%20make%20a%20tax%2Dfree%20rollover%20from%20529%20plans,retirement%20accounts%20starting%20in%202024&text=The%20%241.7%20trillion%20federal%20omnibus,retirement%20accounts%20starting%20in%202024
- https://www.forbes.com/sites/kristinmckenna/2023/01/05/5-big-changes-to-roth-accounts-in-secure-act-20/?sh=228a22cf22c5
- https://www.forbes.com/sites/kristinmckenna/2023/01/05/5-big-changes-to-roth-accounts-in-secure-act-20/?sh=228a22cf22c5
- https://www.paychex.com/articles/compliance/secure-act-changes
- https://www.fidelitycharitable.org/articles/secure-act-2-0-retirement-provisions.html
Jeff Spitzmiller is the CEO of Ohana Wealth & Life Planning based in Cincinnati, OH. Ohana specializes in life and financial planning along with ESG (Environmental, Social, Governance) investing principles for professionals in the healthcare and university fields. The firm is an independent financial advisor and a fee-only fiduciary. Jeff and the firm also enjoy volunteering and giving back to the local community. You can reach Jeff at jeff@ohanaplanning.com.
This was prepared by Ohana Wealth & Life Planning; a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Ohana Wealth & Life Planning Form ADV Part 2A & 2B can be obtained by written request directly to Ohana Wealth & Life Planning 212 East Third St. Ste. #100 Cincinnati, OH 45202. All opinions and estimates constitute the firm’s judgment as of the date of this report and are subject to change without notice. This is provided to investment advisory services clients of Ohana Wealth & Life Planning. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance is no guarantee of future results. The information herein was obtained from various sources. Ohana Wealth & Life Planning does not guarantee the accuracy or completeness of such information provided by third parties. The information given is as of the date indicated and believed to be reliable. Ohana Wealth & Life Planning assumes no obligation to update this information, or to advise on further developments relating to it. This is for informational purposes only. It does not address specific investment objectives, or the financial situation and the particular needs of any person. An index is a portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown.