The SECURE 2.0 Act was included in the $1.7 trillion federal budget bill signed into law by the end of 2022. The bill, while not as revolutionary as the original SECURE Act which became law four year ago, does contain several notable provisions that are intended to improve retirement readiness in the United States.
SECURE Act 2.0, among other things provides greater incentives for employers and employees to participate in qualified retirement plans. Some of the changes have already been implemented, while others are set to be effective in the future.
Here’s a high level overview of SECURE Act 2.0’s key provisions:
The age at which the Required Minimum Distribution (RMD), starts has been moved back
- Your RMD starting age has been increased to 73 if you were born between 1950 and 1959
- Age 75 is the new age for those born after 1960.
- The RMD age is still 72 for those born before 1950.
Roth Account Changes
- Roth 401(k), Roth 403(b) or government 457(b plan accounts will no longer require RMDs
- Roth SIMPLE and Roth SEP Accounts can now be opened. Custodians will need time to make these accounts available.
- Employer contributions to retirement plans (matching or not) can be Roths. The contribution amounts will be included in your gross income
- Roth accounts are required for catch-up contributions by high-wage earners (>$145K). SIMPLE IRAs are exempt from this requirement.
Transferring 529 Plans to a Roth IRA is possible
- The Roth IRA account owner and beneficiary of the 529 plan must be the exact same person
- The 529 Plan must be open for 15 years.
- Contributions to 529 plans made in the last five years cannot be transferred to Roth
- The maximum lifetime transfer amount to the beneficiary is $35,000
IRAs and retirement plans can accept higher catch-up contributions
- Participants in retirement plans (including SIMPLE IRAs), aged 60-63, can make higher catch-up contributions.
- The IRA contribution limit will be indexed to inflation.
Changes in Qualified Charitable Distributions (QCDs).
- QCDs may be used as an initial contribution of up to $50,000 to “split interest” charitable gifting vehicles such as Charitable Gift Annuity or Charitable Remainder Trust.
- No change to the previous law: QCDs are available for those aged 70.5 years or older
- Inflation will be factored into the $100,000 maximum QCD amount per year
Some people, such as:
- Workers in public safety with 25 years or more of service are eligible to receive distributions at 50.
- People with terminal illnesses
- Victims of domestic violence
- Federally declared disaster victims
Limits for Qualified Longevity Annuity Contracts
- The maximum lifetime premium has been increased to $200,000.
- The 25 percent limit on the value of a qualified account has been eliminated
The penalties for missing RMDs has been reduced
- The amount missed is now reduced to 25%.
- If the problem is resolved promptly, this reduction can be further reduced to 10%
Other Important Provisions
- Employers with more than 10 employees must automatically enroll their employees in retirement plans.
- The introduction of starter 401(k). This is a low-cost, simple option for small businesses to create a qualified retirement program for their employees.
- Employers can match the amount that a participant pays in student loans by contributing to a retirement plan.
- Long-term care insurance premiums can be paid from assets in a qualified plan
- Treasury Department instructions to encourage companies to offer annuity products in retirement plans.
SECURE Act 2.0 has over 300 pages and about 100 provisions. The I.R.S. will “flesh out” many details since it is “fresh off the press”. In the next few months. It can be difficult to determine how the law applies to your situation. Before taking any action, you should consult a financial, tax or estate planning professional.
