What Is the SECURE Act 2.0
The SECURE Act 2.0 is a law designed to improve and expand opportunities for Americans to save for a secure and comfortable retirement. Enacted Dec. 29, 2022, the SECURE Act 2.0 adjusts and adds to the original SECURE (Setting Every Community Up for Retirement Enhancement) Act to strengthen the retirement system across the country for individuals and businesses.
If You Are Retired or Approaching Retirement
Some of the new provisions are of particular importance to people at or near retirement age, especially those surrounding required minimum distributions (RMDs) and catch-up contributions.
Required Minimum Distributions
The age at which you must take required minimum distributions is now 73, up from 72. In 2033, it will rise again to 75.
If you turn 72 in 2023, you must take your first RMD by April 1, 2025, for 2024.
If you turned 72 in 2022 and haven’t yet taken your 2022 RMD, you must withdraw it by April 1, 2023, and your 2023 RMD by Dec. 31, 2023.
The penalty for failing to take your RMD in time was reduced. From now on, the penalty will drop from 50% of the RMD down to 25%. For IRAs, the penalty will go down to 10% if you withdraw the RMD and file a corrected tax form within two years.
Starting in 2025, people aged 61-63 can make catch-up contributions to workplace retirement plans of up to $10K every year (indexed for inflation). The current catch-up amount for people aged 50+ was recently increased to $7,500.
There are also new provisions pertaining to employment-based retirement plans for you to take advantage of where possible.
In 2025, automatic enrollment will become mandatory for new employer retirement savings plans, at a minimum contribution rate of 3%. Participating businesses must be three or more years old, with more than 10 employees. Employers can also offer small incentives to encourage employee contributions.
Part-time employees will also have better access to 401(k) plans: they will be able to partake in plans after two years of employment, rather than three.
Retirement plan providers will also be allowed to transfer workplace retirement accounts to a new employer account, even for employees with low balances. Instead of cashing out retirement plans with low balances with every job change, employees can continue to build their savings even as they change employers.
Matching Contributions for Roth IRAs
Starting this year, companies can offer employees the chance to receive vested matching contributions directly to their Roth IRAs.
Other Notable Changes
It is important to be aware of other additions or changes.
Some additions and changes include:
SECURE 2.0 sets out guidelines under which you can access your retirement savings without penalty for emergency situations.
Starting in January 2024, employers will be able to offer matching retirement contributions to employees paying off student loans, so employees can still save for retirement while paying down their debt.
Tax Credits for Small Employers
To encourage small-business owners to start matching-contribution plans, tax credits have been increased.
Don’t hesitate to discuss with a trusted financial advisor how the SECURE 2.0 Act can best work to your benefit. Take advantage of all the chances the new Act provides to reduce your taxes and grow your retirement savings.
Editor Samantha Connell contributed to this article.