Secure Act 2.0: Top 10 Changes
Secure Act 2.0 has been passed and continues to build upon retirement legislation that was passed in the original Secure Act of 2019. The bill is filled with dozens of changes to previous retirement law and provisions will be phased in over the next several years, with some starting immediately in 2023.
In the final days of 2022, Congress passed a new set of retirement rules designed to facilitate contribution to retirement plans and access to those funds earmarked for retirement.
The law is called SECURE 2.0, and it 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. We have highlighted a few major provisions of the new law below. For a more detailed list of Secure Act 2.0 provisions, see our comprehensive “Employer’s Guide to Secure 2.0.”
New Distribution Rules
1. Required minimum distribution (RMD) age will rise to 73 years in 2023: By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking RMDs. Further, starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. However, if you are turning 72 this year and have already scheduled your withdrawal, we may want to revisit your approach.
2. Access to funds: Plan participants can use retirement funds in an emergency without penalty or fees. For example, 2024 onward, an employee can take 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.2
3. Reduced RMD penalty: Starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25 percent from 50 percent. If you promptly fix the mistake, the penalty may drop to 10 percent.
New Accumulation Rules
4. Catch-up contributions: From January 1, 2025, investors aged 60 through 63 years can make annual catch-up contributions of up to $10,000 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 with annual earnings more than $145,000.
If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement.
5. Automatic enrollment: In 2025, the Act requires employers to automatically enroll employees into workplace plans. However, employees can choose to opt-out.
6. 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 Rules
7. 529 to a Roth IRA: Starting in 2024, 529 owners can roll a 529 education savings plan into a Roth individual retirement account (IRA) for the benefit of the 529 plan beneficiary, granted the 529 has been in place for at least 15 years. Rollovers would also be subject to the annual Roth IRA contribution limit, with a lifetime aggregate lifetime limit of $35,000. Rollovers from a 529 plan will count toward the annual Roth IRA contribution limit.
Therefore, if your child receives a scholarship, goes to a less expensive school, or does not 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 also allowed under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.
8. SIMPLE and SEP: 2023 onward, employers can make Roth contributions to savings incentive match plans for employees (SIMPLE) or simplified employee pension (SEP).
9. Roth 401(k)s and Roth 403(b)s: The new legislation aligns the rules for Roth 401(k)s and Roth 401(b)s with Roth IRA rules. From 2024, the legislation no longer requires minimum distributions from Roth accounts in employer retirement plans.
Support for Small Businesses
10. Retirement plan tax credits: 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 percent from 50 percent 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 plan.
The change in retirement rules does not mean adjusting your current strategy is appropriate. Each individual’s circumstance is unique and the provisions highlighted above may or may not present an opportunity to improve your financial situation.
Moreover, retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article intends to give you a broad overview of SECURE 2.0. It is not intended as a substitute for real-life advice. If changes are appropriate, your trusted financial professional can outline an approach and work with your tax and legal professionals, if applicable.
For a more detailed list of Secure Act 2.0 provisions, see our comprehensive “Employer’s Guide to Secure 2.0.”
1. Fidelity.com, December 23, 2022
2. CNBC.com, December 22, 2022
3. Paychex.com, December 30, 2022
4. PlanSponsor.com, December 27, 2022
5. Forbes.com, January 5, 2023
6. FidelityCharitable.org, December 29, 2022
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright FMG Suite.
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Joe Allaria, CFP®
Wealth Advisor | PartnerAs featured in The Wall Street Journal, USAToday.com, CNBC.com, Nasdaq.com, and Yahoo Finance.