On December 29, 2022, SECURE Act 2.0 was signed into law, creating multiple changes to retirement planning. This builds on SECURE Act 1.0 by encouraging Americans to save for retirement to strengthen the financial safety net.
Five Key takeaways of SECURE Act 2.0
- More Roth features
- Employer matching and/or nonelective contributions may be added as Roth dollars instead of pretax. Roth contributions will be included in the employee’s income for the year of the contribution. This is effective immediately or as soon as plan providers can adopt the change.
- Catch-up contributions for high earners must be Roth (if plan allows), instead of pretax starting in 2024 for employees with wages more than $145,000.
- 529 plan balances may be used to make Roth IRA contributions for the beneficiary. The beneficiary must still have earned income, the transfer counts toward the annual Roth IRA contribution limit, money must be in the 529 for at least five years and the 529 must be maintained for at least 15 years. There is also a lifetime maximum transfer of $35,000.
- Increased catch-up retirement plan contribution limits
- IRA catch-up contributions will be indexed for inflation starting in 2024.
- Employees age 50+ can make catch-up contributions as before. Starting in 2024, those age 60-63 can make an even larger catch-up contribution defined as the greater of $10,000 or 150% of the regular catch-up contribution. You may be scratching your head because a worker age 64 or older can’t make the higher catch-up contribution. I’m scratching my head too.
- Changing the age of the required minimum distributions
- Three years ago, the age for taking a required minimum distribution (RMD) increased to age 72 from 70½. This has changed again, and the new RMD starting age increases to 73 starting in 2023. In 2033, the RMD start age will increase to 75.
||Age when RMDs begin
|1950 or earlier
||70½ or 72
|1960 or later
- Beginning in 2024, RMDs from Roth 401(k), 403(b), 457(b) and TSP plans will no longer be required. This makes the Roth employer plan distribution rules like Roth IRAs.
- Note that the RMD age change does not impact the qualified charitable distribution age which still begins at 70 ½ years old.
- RMD penalty relief
- Beginning this year, the penalty for missing an RMD is reduced from 50% to 25%. And 2.0 goes one step further. If the RMD that was missed is taken in a timely manner and the IRA account holder files an updated tax return, the penalty is reduced to 10%. But let’s be clear, while the penalty has been reduced, you’ll still pay a penalty for missing your RMD.
- Back-door student loan relief
- Starting next year, employers are allowed to match student loan payments made by their employees. The employer’s match must be directed into a retirement account.
What’s provided here is a high-level overview of some SECURE Act 2.0 features. Keep in mind that it’s not all-encompassing and you should seek the advice of a competent tax advisor and financial planner for your situation.
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For personalized help eliminating debt, investing smart and securing retirement, please contact Mark Ziety, CFP®, AIF® 608.442.3750.
Mark Ziety, CFP®, AIF®
WisMed Financial, Inc. part of the Wisconsin Medical Society.