How the SECURE 2.0 Act Affects You
No matter where you are in your career or retirement, the recently passed SECURE 2.0 Act has something for you. At 130 pages, it’s both lengthy and complex. We summarized several new rules and opportunities that might affect you.
The last few years we saw a variety of laws passed regarding taxes, retirement, and pandemic relief. The most recent iteration is the SECURE 2.0 Act, signed into law at the end of 2022, with several changes already in effect as 2023 kicks off.
The original “Setting Every Community Up for Retirement Enhancement” (SECURE) Act was passed in 2019 and was most notable for upping the Required Minimum Distribution (RMD) start date from age 70 ½ to age 72 for those with an IRA or similar retirement plan.
SECURE 2.0 features yet another change to the RMD age. For those turning 72 in 2023, their RMD now starts at age 73, meaning they can wait to take their first RMD until 2024.
This is just one of many changes now in effect. Review a summary of changes below based on your current stage of life or career:
Retired (or close to it)
As mentioned previously, Secure 2.0 once again raises RMD age for those with IRAs. Here is a quick reference to see what RMD age applies to you:
- Born before July 1, 1949: age 70 ½
- Born between July 1, 1949 and December 31, 1950: age 72
- Born between January 1, 1951 and December 31, 1959: age 73
- Born after January 1, 1960: age 75
SECURE 2.0 also reduced the penalty for not meeting your RMD from 50% of the amount not taken down to 25%. In fact, if you rectify the mistake quickly and submit a corrected tax return the penalty can be reduced to 10%. This is a welcome change for those who’ve made honest mistakes in taking their RMD, especially due to the variety of recent changes concerning RMD starting ages.
One additional change of note for those near retirement is the increase to “catch-up” contributions to employer retirement plans.
- For 2023, the catch-up limit is $7,500 and is available to anyone 50 or older.
- Starting January 1, 2025, the catch-up limit for those ages 60-63 will jump to $10,000 and will be indexed to inflation moving forward.
- However, if you make over $145,000, the catch-up must go into a Roth account with after-tax dollars.
Early or mid-career
SECURE 2.0 has notable updates to regulations affecting early and mid-career workers in addition to those in or near retirement.
- First comes a requirement that businesses starting new 401(k) and 403(b) plans automatically enroll eligible workers at a 3% deferral rate in 2025 (unless employees specifically opt out).
- There is also an effort to reduce retirement plan “leakage” by allowing for easier portability of retirement accounts between employers. This may be especially helpful for those with smaller balances that often cash out their account (or forget about it) rather than roll it to their new employer.
- Starting in 2023, retirement plan participants can also opt to receive matching contributions from their employer into a Roth account rather than a pre-tax account.
- A new provision now allows employer-sponsored retirement plans to add an emergency savings account for their participants, starting in 2024. This would be in the form of a designated Roth account and contributions would be capped at $2,500 and only available to non-highly compensated employees.
The last two changes we’ll mention deal with student loans and 529 plans, a type of college savings account.
- Starting in 2024, employers can match the amount an employee pays toward student loans into their retirement account, helping them save while they pay down their debt.
- Unused 529 plan balances will have the option to be rolled into a Roth IRA for the 529 plan beneficiary if the account has been open for 15 years. This begins in 2024 and is subject to annual Roth IRA funding limits, with a max rollover of $35,000 allowed over a five-year period.
Talk to your financial planner
While we covered several notable changes brought on by SECURE 2.0, there are additional nuances, guidelines, and restrictions that apply. Other changes affect the catch-up contribution limits, Qualified Charitable Distributions (QCDs), and the Saver’s Credit, to name a few. Click here for more in-depth analysis on several of these changes.
If you’re wondering which changes might impact you or your family’s financial plan, reach out to your financial planner.
Not a client of Johnson Bixby? If this article spurred questions about your financial situation and planning, we’d love to have a conversation to see whether we’re a good fit to partner with you on your financial journey. Call us at 360-695-1795 to schedule time.
Secure Act 2.0, Senate Finance Committee https://www.finance.senate.gov/download/retirement-section-by-section-
Fidelity Institutional https://www.fidelity.com/learning-center/personal-finance/secure-act-2
Sean Mullaney, Financial Planner, @SeanMoneyandTax https://twitter.com/SeanMoneyandTax/status/1605644191916183552
Charles Schwab Asset Management https://www.schwabassetmanagement.com/content/secure-act-20-new-retirement-law-land
Written By Zach Reuter, CFP®