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SECURE Act 2.0: What You Need to Know

In the final days of 2022, Congress passed a new set of retirement rules, known as SECURE Act 2.0, designed to make it easier to contribute to retirement plans and access those funds earmarked for retirement.

The new SECURE 2.0 law is a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019.

The sweeping legislation has dozens of significant provisions, so to help you see what changes may affect you, we’ve broken the major provisions of the new law into four sections.

New Retirement Plan Distribution Rules

RMD age will rise to 73 in 2023. By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking required minimum distributions (RMDs). And starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. But if you are turning 72 this year and have already scheduled your withdrawal, it may be appropriate to revisit your approach.

Access to funds. Plan participants can use retirement funds in an emergency without penalty or fees. For example, starting in 2024, an employee can get up to $1,000 from a retirement account for personal or family emergencies. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.

Reduced penalty. Also, 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%.

New Retirement Plan Accumulation Rules

Catch-Up Contributions. Starting January 1, 2025, investors aged 60 through 63 can make catch-up contributions of up to $10,000 annually to workplace retirement plans. The catch-up amount for people aged 50 and older in 2023 is $7,500. However, the law applies certain stipulations to individuals earning more than $145,000 annually.

Automatic Enrollment. Beginning in 2025, the Act requires employers to enroll employees into workplace retirement plans automatically. However, employees can choose to opt-out.

Student Loan Matching. In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.

Revised Roth IRA Rules

529 to a Roth IRA. Starting in 2024, pending certain conditions, employers can roll a 529 education savings plan into a Roth IRA. So, if your child gets a scholarship, goes to a less expensive school, or doesn’t go to school, the money can get repositioned into a retirement account.

However, rollovers are subject to the annual Roth IRA contribution limit. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. Tax-free and penalty-free withdrawals are allowed under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

SIMPLE and SEP. From 2023 onward, employers can make Roth contributions to Savings Incentive Match Plans for Employees or Simplified Employee Pensions.

Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 403(b)s with Roth Individual Retirement Account (IRA) rules. From 2024 on, the legislation no longer requires minimum distributions from Roth Accounts in employer retirement plans.

More Highlights from SECURE Act 2.0

Support for Small Businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100% from 50% for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace retirement plan.

Qualified Charitable Donations (QCD). From 2023 onward, QCD donations will adjust for inflation. The limit applies on an individual basis, so for a married couple, each person who is 70½ years old and older can make a QCD as long as it remains under the limit.

Remember that just because retirement rules have changed does not mean that adjusting your current strategy is appropriate. Each of your retirement assets plays a specific role in your overall financial strategy, so a change to one may require changing another.

Also, retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same forever. Please don’t hesitate to contact your financial advisor should you want to discuss this in further detail.

*This article intends to give you a broad overview of SECURE 2.0. It’s not intended as a substitute for real-life financial advice. If changes are appropriate, we will outline a custom approach and work with your tax and legal professionals, if applicable.

 

Data Sources:

1. Fidelity.com, December 23, 2022

2. CNBC.com, December 22, 2022

3. Fidelity.com, December 22, 2022

4. Fidelity.com, December 22, 2022

5. Paychex.com, December 30, 2022

6. PlanSponsor.com, December 27, 2022

7. CNBC.com, December 23, 2022

8. Forbes.com, January 5, 2023

9. Forbes.com, January 5, 2023

10. Paychex.com, December 30, 2022

11. FidelityCharitable.org, December 29, 2022

 

Financial Synergies

Financial Synergies Wealth Advisors is a fee-only Financial Advisor and Wealth Management firm located in Houston, Texas. For more than thirty-five years we’ve been serving the financial needs of individuals, families, and businesses from around the world. Our primary goal is to Simplify Your Financial Life. Our Certified Financial Planner™ professionals and advisors combine holistic financial planning and investment management to deliver Total Wealth Management for our clients.

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