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Secure Act 2.0 Enacts Big Changes To Retirement Rules Thumbnail

Secure Act 2.0 Enacts Big Changes To Retirement Rules

Financial Planning In the News Retirement

Andrea McClelland, CFP®

Nestled within the massive omnibus funding bill passed and signed into law last week is “The Secure Act 2.0 of 2022,” which updates and expands provisions of the original SECURE Act of 2019. Many changes enacted by Secure 2.0 bolster retirement planning opportunities and offer significant benefit to workers and retirees - read on for highlights:

  1. Increased RMD age: Participants in employer-sponsored retirement plans and traditional IRAs must currently start required minimum distributions (RMDs) the year they turn 72 (increased from age 70 ½ by the original SECURE Act of 2019). Secure 2.0 pushes RMD age to 73 (as of 2023), and in 2033, the RMD age will increase to 75.
  2. Increased catch-up contribution amount for older workers: Workers age 50 and older are currently allowed to contribute an extra amount, known as a "catch-up" contribution, to employer-sponsored retirement plans. The catch-up contribution limit for 2022 is $6,500 and will increase to $7,500 in 2023. Under Secure 2.0, starting in 2025, workers between the ages of 60 and 63 will be eligible to contribute a higher catch-up amount of $10,000, which will be adjusted for inflation. However, workers with earnings over $145,000 (also adjusted for inflation) will be required to make catch-up contributions to a Roth account.
  3. Rollovers from 529 plans to Roth IRAs: Tax- and penalty-free roll-overs of up to $35,000 (lifetime limit) from a 529 savings plan to a Roth IRA in the 529 beneficiary's name will be permitted, effective 2024. The 529 account must have been open for at least 15 years, and rollovers are subject to annual contribution limits in addition to the $35,000 lifetime limit.
  4. Employer match now Roth-eligible: Effective 2023, employers may (but are not required to) allow employees to direct matching contributions to a Roth account.
  5. Roth 401ks no longer subject to RMDs: With passage of Secure 2.0, Roth 401k distribution rules align with Roth IRAs, which are exempt from RMDs. 
  6. Indexing of IRA catch-up and QCDs: the $1,000 IRA catch-up contribution limit and the $100,000 maximum Qualified Charitable Contribution (QCD) limit will be inflation-indexed starting in 2024.
  7. Retirement savings lost and found: A national database, to be created no later than year-end 2024, will enable retirement savers to locate lost or forgotten retirement accounts.
  8. Reduced penalties for missed RMDs: Tax penalties will be reduced from 50% to 25% for missed RMDs, and further reduced to 10% if the error is corrected in a timely fashion.

Other Secure Act 2.0 provisions include penalty-free access to limited emergency qualified plan withdrawals, requirements for some workplace retirement plans to auto-enroll workers, treatment of employees' qualified student loan payments as retirement plan deferrals for the purpose of employer matching contributions, availability of Roth SEP and SIMPLE plans, an expanded savers' credit, increased access to retirement plans for part-time workers, and standardization of the direct rollover process for employer plans.

With so many changes afoot, we will be following closely as details and guidance around the new rules emerge in coming months - stay tuned!

This content is developed from sources believed to be providing accurate information as of the date of publication, and is intended for informational purposes only. Please consult your financial professionals for specific information regarding your individual situation. Past performance does not guarantee future results. All investing involves risk, including risk of loss.