Nine critical takeaways from SECURE Act 2.0

The Setting Every Community Up for Retirement Enhancement Act of 2019, popularly known as the SECURE Act, was signed into law in late 2019. The SECURE Act 1.0 included provisions that raised the requirement for mandatory distributions from retirement accounts and increased access to retirement accounts.

Recently, Congress enhanced the landmark bill enacted three years ago, including another overhaul of the nation’s retirement laws. Dubbed SECURE Act 2.0, the bill builds on SECURE Act 1.0 by strengthening the financial safety net by encouraging Americans to save for retirement.

Here are nine critical takeaways from SECURE Act 2.0:

Changing the age of the required minimum distributions. Three years ago, 1.0 increased the age for taking the required minimum distribution, or RMD, to 72 years from 70½. For those that turn 72 this year, the age required for taking RMDs rises to 73 with 2.0. Those that turned 72 in 2022 will remain on the prior schedule.

Investors that turn 72 in 2023 may delay their RMD until 2024 when they turn 73. Or they may push back their first RMD to April 1, 2025. This means they will be required to take two RMDs in 2025, one no later than April 1 and the second no later than December 31. Starting in 2033, the age for the RMD will rise to 75. Employees enrolled in a Roth 401(k) won’t be required to take RMDs from their Roth 401(k). That begins in 2024.

RMD penalty relief. Beginning this year, the penalty for missing an RMD is reduced to 25% from 50%. 2.0 goes one step further; if the missed RMD is taken promptly and the IRA account holder files an updated tax return, the penalty is reduced to 10%. While the penalty has been reduced, it’s important to note that there is still a penalty for missed RMDs.

Benefits to employer-sponsored plans. Too many Americans do not have access to employer plans or don’t participate. Starting in 2025, companies that set up new 401(k) or 403(b) plans will be required to enroll employees automatically at a rate between 3% and 10% of their salary. The new legislation also allows for automatic portability, encouraging those in low-balance plans to transfer their retirement account to a new employer-sponsored account rather than cash out. Employees may opt-out of the employer-sponsored plan.

Increased catch-up provisions. In 2025, 2.0 increases the catch-up provision for those between 60 and 63 from $6,500 in 2022 ($7,500 in 2023 if 50 or older) to $10,000 (the greater of $10,000 or 50% more than the regular catch-up amount). The amount is indexed to inflation. Catch-up dollars are required to be made into a Roth IRA unless wages are under $145,000.

Charitable contributions. Starting in 2023, 2.0 allows a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. One must be 70½ or older to take advantage of this provision. The $50,000 limit counts toward the year’s RMD. It also indexes an annual IRA charitable distribution limit of $100,000, known as a qualified charitable distribution, or QCD, beginning in 2023.

Back-door student loan relief. Starting next year, employers can match employee student loan payments. The employer’s match must be directed into a retirement account, but it is an added incentive for those paying off student loans to save funds for retirement.

Disaster relief. You may withdraw up to $22,000 penalty-free from an IRA or an employer-sponsored plan for federally declared disasters. Withdrawals can be repaid to the retirement account.

Help for survivors. Victims of abuse may need funds for various reasons, including cash, to extricate themselves from a difficult situation. 2.0 allows a victim of domestic violence to withdraw the lesser of 50% of an account or $10,000 penalty-free.

Rollover of 529 plans. Starting in 2024 and subject to annual Roth contribution limits, assets in a 529 plan can be rolled into a Roth IRA, with a maximum lifetime limit of $35,000. The rollover must be in the name of the plan’s beneficiary. The 529 plan must be at least 15 years old. In the past, families may have hesitated in fully funding 529s amid fears the plan could be overfunded, and withdrawals would be subject to a penalty. Though there is a $35,000 cap, the provision helps alleviate some of these concerns.

Many Americans lack adequate savings, and the just-enacted bill helps address some of the challenges many face as they advance toward retirement.

This is a high-level overview of the SECURE Act 2.0; keep in mind that it is not all-inclusive. We are always here to assist you, answer your questions, and tailor any advice to your needs. Also, feel free to contact your tax advisor with any tax-related questions.

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^{Sources: [[https://images.thinkadvisor.com/contrib/content/uploads/documents/415/479719/GA_SECURE-2.0-Act-of-2022_Section-by-Section-Summary-FINAL.pdfSecure Act 2.0 Act of 2022]]; [[https://www.fidelity.com/learning-center/personal-finance/secure-act-2 SECURE 2.0: Rethinking Retirement Savings]]; [[https://www.schwab.com/learn/story/congress-passes-major-boost-to-retirement-savingsCongress Passes Major Boost to Retirement Savings]]; [[https://www.wsj.com/articles/WP-WSJ-0000441889 The 401(k) and IRA Changes to Consider After Congress Revised Many Retirement Laws]]}