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What Changes are in the SECURE ACT 2.0?

There’s a lot of noise around the SECURE Act 2.0 and how it will change certain aspects of retirement for everyone. In order to know about the SECURE Act 2.0, we must first understand the original SECURE Act.


What is the SECURE Act? 

The SECURE Act was initially passed in 2019 and its purpose was to help Americans with their retirement needs. It was established to increase access to retirement plans for small business owners and part-time workers and encourage older Americans to utilize all of their retirement savings in their lifetime. 💸

Some of the important legislation from the SECURE Act are as follows:

  • Part-time employees could become eligible for employer retirement plans.
  • Retirement plan participants were required to take minimum distributions (RMDs) from accounts at the age of 72. There was a 50% penalty for failing to take RMDs at 72. 
  • Traditional IRA owners can make contributions indefinitely to their accounts.
  • Non-spouses inheriting IRAs must distribute the entire amount of the account within 10 years. 

What is the SECURE Act 2.0? 

The SECURE Act allowed Americans to enhance their chances of a successful retirement. With the changes made to it this year, it gives more opportunities on how to better save for retirement. 😄 Now we know the basics of the original SECURE Act, so let's compare how it has changed to the SECURE Act 2.0. Here is a list of changes created by the SECURE Act 2.0. 

Required Minimum Distributions (RMDs) 

  • The age to start taking RMDs is pushed back to 73 starting on January 1, 2023. If you turned 72 in 2022 or earlier, then you must continue to take your RMDs as planned. If you are turning 72 in 2023, then you can consider starting your distributions in 2024! This legislation is on track to change to age 75 in 2033.
  • The 50% late withdrawal penalty is reduced to 25% if RMDs are not taken out in time. For IRAs, there is now a 10% penalty if it is corrected in a timely manner and submits a corrected tax return. 
  • RMDs will not be required from employer provided Roth accounts in 2024. 

Increased Catch-up Contributions 

  • 401(k) and similar plan catch-up contributions of $10,000 annually are available for account owners of an employer provided plan ages 60 to 63 starting January 1, 2025. The current catch-up contribution of $7,500 is available for participants age 50 and older in 2023. 
  • If you are age 50 or older and earn more than $145,000 in a prior calendar year, your catch-up contribution must be made to a Roth account. 
  • For people aged 50 and older, the catch-up contribution limit for IRAs is currently $1,000 but starting in 2024, that limit will be indexed every year according to inflation, so there is potential for increase. 

Employer Matching for Roth Accounts

Employer matching in retirement plans has previously been on a pre-tax basis only. This has been changed and will allow employers to match employee deferrals to Roth accounts on an after-tax basis, allowing the earnings to grow tax-free. Employers are allowed to offer this, however, it may take time for plan providers to update their plans and payroll systems. 

Automatic Enrollment and Plan Portability

There has been a history of Americans reaching retirement with little to no savings. To combat this, in 2025 employers adopting new 401(k) and 403(b) plans will be required to automatically enroll eligible participants into their plans with at least a 3% contribution rate. This rate will increase 1% each year until it reaches at least 10%. This change also allows automatic portability of an employee's low balance in their retirement accounts to a new plan with another employer or cashing out their balance when they leave a job. 

Student Loan Debt 

There is a new incentive for employees to save for retirement while paying their student loans. Starting in 2024, employers can offer to “match” employees qualified student loan payments with a matching contribution to their retirement plan. This would allow employees who are overwhelmed with student debt and missing out on contributions to have an extra cushion on their retirement. 

529 Plans 

Another huge change would be the availability to rollover leftover 529 assets into a Roth IRA for the beneficiary. The rollover will be considered a contribution and must remain within the Roth contribution limits and will be subject to a lifetime limit of $35,000. 

Emergency Savings

Defined contribution plans can add an emergency savings account that can accept contributions from non highly compensated employees starting in 2024. The contributions cannot exceed $2,500 annually and the first 4 withdrawals in one year from the account will be penalty- and tax-free. These contributions can be eligible for an employer match depending on the plan rules. The purpose of this legislation encourages employees to save for unexpected or short term expenses. 

Qualified Charitable Distributions (QCDs)

For people ages 70½ and older will have the opportunity to elect up to $50,000 as a one-time gift to a charitable remainder unitrust, annuity trust, or gift annuity. Starting in 2023, this legislation expands the type of charities that can receive a QCD. These gifts must come directly from an IRA by the end of the calendar year to count as a qualifying charitable distribution. 

The SECURE Act 2.0 provides more opportunities for Americans to save more towards retirement. 🤑 There are many changes to keep track of with this new legislation within the next few years, but you can depend on us experts to provide you with the information necessary for your specific situation. 🤓 Don’t hesitate to schedule a free 30 minute consultation with us with any questions or concerns about how these changes could affect you!

Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

Fyooz Financial Planning
Founders, Fyooz Financial

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