December 29, 2022 was quite the momentous day! I celebrated my 42nd birthday by trying out a sensory-deprivation flotation tank for the first time (weird, but very relaxing) and President Biden signed the SECURE Act 2.0 into law.
The 2.0 version of the Setting Every Community Up for Retirement Enhancement (SECURE) Act was a follow-up to the original 1.0 Act that went into effect in 2019. Both SECURE Acts included provisions aimed at improving Americans’ retirement readiness by broadening access to retirement savings, lowering employers' cost of sponsoring retirement plans, and encouraging employees to save for retirement. Although there is a long list of changes included in the SECURE Act 2.0, not all of the changes go into effect immediately.
Here are a few highlights that might impact you:
- Starting in 2023:
- The Required Minimum Distribution (RMD) age was increased (again). The RMD starting age is now 73 for those turning 73 between 2023 and 2032. The RMD starting age is pushed back to age 75 for those turning 73 in 2033 or later. This is helpful news for retirees that don’t need to draw off their retirement accounts for living expenses quite yet! You now get a longer period of tax-deferred growth.
- The penalty for forgetting to take an RMD has been reduced from 50% to 20%, and then down to 10% if you correct the missed distribution within a timely manner. Still ouch… but better?
- The credit available to small businesses with less than 50 employees that can be used to offset the administrative costs of setting up a workplace retirement plan will increase, removing one of the biggest hurdles for small businesses who would like to offer their employees a chance to save for retirement.
- Qualified Charitable Distributions (QCDs) are still only available to those over the age of 70 ½, but there are two changes worth noting:
- The maximum annual amount allowed for a QCD will now adjust for inflation (historically only up to $100,000 per year has been allowed).
- Those eligible to make QCDs have a one-time opportunity to fund a charitable remainder trust or a charitable gift annuity with up to $50,000 from a QCD.
- Starting in 2024:
- The IRA catch-up contribution limit will be indexed for inflation.
- Up to $1k can be withdrawn from a retirement account penalty-free for personal or family emergencies, with provisions included for a terminal illness diagnosis or for victims of domestic abuse.
- Companies will be able to match their employees’ student loan payments with retirement contributions.
- Subject to certain conditions, unused funds in a 529 account can be rolled over to a Roth IRA.
- Minimum distributions will no longer be required from employer sponsored Roth 401(k)s.
- Starting in 2025:
- The catch-up contribution limit to workplace retirement plans has been increased for those who are 60-63 years old.
- New 401(k) and 403(b) plans must automatically enroll employees into the plan (employees must opt-out instead of opting-in).
This is not an exhaustive list of all the changes that were included in the SECURE Act 2.0, but as you can see the provisions are intended to help make saving for retirement a little easier. Many of the Act’s terms have nuances and are subject to specific conditions, so it’s important to talk to me about what aspects of the Act might be relevant for you personally before you make any changes to your financial life.