Understanding SECURE Act 2.0
Funding retirement is a priority for many people. SECURE Act 2.0 aims to offer Americans a range of financial benefits, including alternative ways to save for retirement.
Following 2019’s original version of “Setting Every Community Up for Retirement Enhancement” (known as the SECURE Act), the second iteration of the Act was signed into law just before year-end 2022.
Referred to as SECURE Act 2.0 and part of the Consolidated Appropriations Act (CAA) of 2023, this latest iteration expands on the SECURE Act of 2019. The primary goal of bipartisan legislators is to continue enhancing participation in retirement plans so the growing cohort of Americans who are in (or approaching) retirement may build a stronger financial future.1
The “Economic Well-Being of U.S. Households Report,” published in May 2022 by the Federal Reserve Board, revealed that only 75% of non-retirees reported having some type of retirement savings. Furthermore, a mere 40% of people felt their savings would be sufficient to support them during retirement.2 SECURE Act 2.0 includes 92 provisions designed to improve on these underwhelming statistics by offering additional opportunities to save for retirement.
While much of the focus relates to retirement-related concerns, SECURE Act 2.0 extends to and positively impacts a broader range of Americans. Here are what we think are the six essential changes brought forth by the SECURE Act 2.0, what we think you should know about, and how you can possibly benefit from them:
1. Changes to Required Minimum Distributions (RMDs)
SECURE Act 2.0 pushed back the age at which RMDs must begin. Starting on January 1, 2023, RMDs are not required to be taken until age 73. However, if you turned 72 in 2022 or earlier, you must continue taking RMDs as if nothing has changed. For those turning 74 on or after January 1, 2033, you won’t be required to take RMDs until age 75.3
Roth IRA accounts within employer retirement plans—such as 401(k), 403(b), etc.—are now exempt from RMD requirements.4
The excise tax penalty for failing to take an RMD has been reduced from 50% of the RMD amount to 25%. The penalty can be further reduced to 10% if the RMD is eventually taken and a corrected tax return is submitted.5
2. Changes to catch-up contributions
Starting on January 1, 2025, individuals ages 60 to 63 will be allowed to make $10,000 catch-up contributions to employer retirement plans. Be aware that beginning at age 50, all catch-up contributions must be made to a Roth account for any individual whose wages exceed $145,000.6
Starting in 2024, the $1,000 IRA catch-up contribution for individuals over the age of 50 will be indexed to inflation.7
3. 529 plan assets may be rolled over to a Roth IRA
Historically, if you overfunded a 529 plan, it was difficult to get the excess funds out of the account without incurring penalties. Starting in 2024, 529 plan assets can be rolled over to a Roth IRA for the beneficiary of the 529 plan.8
However, to be eligible for the rollover, the 529 plan account must be at least 15 years old. Additionally, the amount rolled over will count against the annual Roth contribution limit, and all transfers are limited to an aggregate lifetime limit of $35,000.9
4. Student loan repayment
Starting in 2024, employers can make a matching contribution to an employee’s retirement account based on the amount that the employee pays toward student loans. This will help address the problem of student loan debt preventing people from saving adequately for retirement.10
5. Emergency distributions from a 401(k)
SECURE Act 2.0 includes a provision that allows employees to withdraw up to $1,000 per year from their 401(k), without penalty, as an emergency distribution. Please note that this provision will be allowed only once within a three-year period unless the 401(k) is repaid the prior distribution amounts.11
6. Emergency savings accounts
SECURE Act 2.0 also includes a provision that allows employers to set up emergency savings accounts within retirement plans for employees. While employees may choose to opt out, if such an account is established, the employer can direct wages of up to 3% from each employee into the account.12
The total account value cannot exceed $2,500. Employees may take the cash or roll their emergency savings funds into a retirement account when they change jobs.13
Many of the provisions within the SECURE Act 2.0 do not require immediate changes to your current plan. However, consulting with your CI Private Wealth Advisor and CPA earlier rather than later can help you take advantage of the new opportunities and potential savings created by SECURE Act 2.0.
1 https://www.kaine.senate.gov/press-releases/cassidy-kaine-collins-coons-introduce-legislation-to-help-americans-better-plan-for-retirement
2 Economic Well-Being of U.S. Households in 2021
3 SECURE Act 2.0: Summary of Key Tax and Retirement Provisions
4 SECURE 2.0: Rethinking retirement savings
5 SECURE 2.0: Rethinking retirement savings
6 SECURE Act 2.0: Summary of Key Tax and Retirement Provisions
7 SECURE Act 2.0: Summary of Key Tax and Retirement Provisions
8 SECURE 2.0: Rethinking retirement savings
9 SECURE 2.0: Rethinking retirement savings
10 SECURE Act 2.0: Summary of Key Tax and Retirement Provisions
11 How Secure Act 2.0 Changes Retirement
12 How Secure Act 2.0 Changes Retirement
13 SECURE 2.0: Rethinking retirement savings
ABOUT THE AUTHOR
Corey Orthengren, MPA
Corey Orthengren is a member of our Financial Planning Team. Prior to joining RGT, he worked as a commercial credit analyst for Amarillo National Bank, a regional bank in Amarillo, Texas. In his position, Corey did the underwriting for many commercial and industrial loans the bank made.
Corey graduated from West Texas A&M University with a bachelor’s in finance and accounting and a Master of Professional Accounting. He has passed the CFA Level 1 exam and is currently in pursuit of a CPA license and CFP certification.
