At the end of 2022, Congress passed additional retirement rules designed to make it easier to contribute to retirement plans and access the funds within the accounts.
SECURE 2.0 Act of 2022 is an expansion of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was passed in 2019. The new act contains dozens of critical rules. We will summarize several of the most important features of the new act in this article.
NEW DISTRIBUTION RULES
Increase in RMD age to 73 in 2023 and 75 in 2033
One of the most monumental modifications was raising the age at which individuals must begin taking required minimum distributions (RMDs) from their retirement accounts. The RMD starting age climbs to 73 in 2023 for individuals born in years 1951-1959. And starting in 2033, RMDs will begin at age 75 for those born in 1960 or later. If you have already turned 72, you must continue taking distributions.
Reduced Penalty for Failing to Take RMDs
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%.
Plan participants can access their retirement funds in an emergency without incurring any penalties or fees. Soon, they will be able to withdraw up to $1,000 from a retirement account for personal and family matters starting in 2024. In addition, there are specific provisions available if someone is facing a terminal illness or has experienced domestic abuse.
NEW ACCUMULATION RULES
As of January 1, 2025, investors aged between 60 to 63 years old can make catch-up contributions up to $10,000 every year for their workplace retirement plans. For those individuals 50 and older who are contributing in 2023, the maximum contribution amount is set at $7,500. However, the law applies certain stipulations to individuals earning more than $145,000 annually.
Beginning in 2025, the Act requires employers to enroll employees into workplace plans automatically. However, employees can choose to opt out.
Student Loan Matching
In 2024, businesses have the opportunity to incentivize their employees by matching any student loan payments with retirement contributions. This novel policy encourages workers to make progress on both paying off their debts and saving for a secure future.
REVISED ROTH RULES
529 Plan to Roth IRA
Starting in 2024, it will be possible to roll a 529 education savings plan into a Roth IRA providing certain conditions are met. If your child is awarded scholarship money or opts for a cheaper college option, the funds from their 529 can easily be redirected toward their retirement account – just keep in mind that this conversion may have an impact on the annual contribution limit of their Roth IRA.
Elimination of RMDs for Employer Plan Roth Accounts
The new legislation ensures that qualified employer plan Roth accounts, such as Roth 401(k)s and Roth 403(b)s, follow the same RMD guidelines as those of a Roth IRAs. Starting in 2024, people who are of RMD age will no longer be required to take distributions out of their Roth employer plans.
SUPPORT FOR SMALL BUSINESSES STARTING NEW PLANS
The legislature has taken a substantial leap forward to assist small business owners in 2023, providing an incredible tax credit three times the size for administrative expenses related to setting up retirement plans. This measure will have a notably positive impact on employers with less than 50 employees who face mounting costs and complexity when creating these types of plans. By expanding the pool of available credit, legislators have broken down one of the biggest obstacles preventing businesses from offering their workers an attractive and beneficial workplace package.
QUALIFIED CHARITABLE DISTRIBUTIONS (QCDs)
Starting in 2023, Qualified Charitable Donations (QCD) will be eligible for inflation adjustments. Each individual person who is above 70½ years old can take advantage of this opportunity as long as they do not exceed the limit. This applies to married couples too - each partner over 70 and a half can make their own QCD as long as it remains below the set maximum amount.
The SECURE 2.0 Act introduces many changes to retirement plan regulations and distributions. These new rules can make it easier for individuals to access their retirement funds or contribute more money into them; however, we must bear in mind that everyone's situation is unique and these changes may not have the same effect on all people. Ultimately, it is essential to be aware of how this act will impact your own finances before making any decisions. It's important to contact a financial planner and get informed on exactly how these new regulations might impact your retirement plans in particular.
👉 If you would like to get a FREE retirement assessment, click the link to schedule your 20-minute call to start the retirement assessment process.