Secure Act, the sequel to the 2019 original, or Secure Act 2.0 as it is better known, has been signed!  This legislation has created a significant amount of changes to the retirement planning landscape (92 new or modified provisions!).  The changes affect individuals and businesses, so everyone should be aware of what changed.  Most changes are effective for future years so there is time to get comfortable with the changes.  There are also IRS and DOL clarifications that will be needed, and will likely take time to come out.  Below is a summary of the significant changes and the effective date of the change.  As always, reach out to us with questions!

Individual Provisions
  • Required Minimum Distributions – beginning in 2023, are not required until age 73.  Beginning in 2033 they are not required until 75.  There also is a reduction in the penalty if you do not take your distribution in time.
  • Savers Match – if your income is below certain levels (41,000 married joint, 20,500 single) you could qualify for a match from the government for contributions to a retirement plan.  The match is capped at 2,000, and this does not take effect until January 2027.  So odds are those reading this now will not qualify at that time.
  • Increase in Catch-Up Contributions – Currently retirement plan participants over 50 are allowed to make catch-up contributions to 401k, 403b, and Simple IRA Plans.  Beginning in 2025, participants who are 60 – 63 will be allowed to make larger catch-up contributions.  For example, in 2025 a participant who is 55 can make a catch-up contribution of 7,500, and a participant who is 63 can make a 10,000 contribution.
  • Catch-Up Contributions to Roth – Starting in 2024, if your wage in the previous year was 145,000, your catch-up contributions must go into a Roth account.
  • RMD from Roth 401(k)s– the requirement for RMD’s out of a Roth 401k or 403b is removed starting in 2024.  This lines the Roth 401k and 403b rules up with the Roth IRA rules.
  • Distributions for LTC Premiums – Starting in 2026, retirement plans can allow distributions up to 2,500 to pay for long-term care insurance premiums.  These would be taxable distributions, but not subject to the 10% limit.
  • SEP for Domestic Employees – Starting in 2023, Employers of domestic employees (nanny, housekeeper) can create a SEP plan for the worker.
  • IRA Catch-up Contributions – these will now be indexed for inflation, they had been at a static $1,000.
  • Excess 529 Rollover – Starting in 2024, excess funds in a 529 Plan can be rolled into a Roth IRA.  The rollover has a lifetime cap of 35,000, and annual rollovers are capped at 6,500 per year.  The 529 plan must have been open for more than 15 years.
  • Qualified Charitable Distribution – the QCD (charitable contribution directly from an IRA) limit of 100,000 will be inflation adjusted starting in 2024.
Business Provisions
  • Auto Enrollment – Plans with more than 10 employees that start a 401K or 403B plan must have automatic enrollment as part of the plan.  This needs to be in place beginning in 2025.  Current 401k and 403b plans are exempt from this rule.
  • Catch-Up Contributions – Starting in 2024, if you want to accept catch-up contributions, you will be forced to add a Roth feature to your plan.
  • Match Contributions to Roth Account – Starting now, Plans can give employees an option to have the employer matching contribution contributed into the Roth account.  This will force the employee to pick up the income in the year of the match.
  • Simple IRAs and SEPs – Simple IRA plans can have a Roth feature starting in 2023.  SEP contributions can also be made to a Roth account, but this will cause the participant to have current year income for the contribution.
  • Match on Student Loan Payments – Starting in 2024, Companies can elect to count student loan payments made by the employee as deferrals to the plan when they calculate their matching contributions.
  • Late Start to Solo 401(k) – starting with 2022, a single member LLC can start a 401k plan after the year-end and make employee and employer contributions by the due date of the tax return.
  • Gifts to Incentivize Contributions – starting in 2023 employers can provide “de minimis financial incentive” to employees to get them to contribute to plans.  For example, a $25 gift card to anyone who enrolls in the plan.
  • Emergency Withdrawals – Plans can allow emergency withdrawals up to 1,000 per year that are exempt from the 10% penalty and can be paid back within 3 years.
  • Expanded Part-time Eligibility – Employees who work between 500 and 999 hours for two consecutive years must be allowed into the plan.  Currently they are required to be in after 3 years.

Other provisions effect items such as distributions for adoption expenses, special needs trusts, and expanded tax credits for new plans.

If you have any questions about how the SECURE Act 2.0 may affect you, please reach out to us at JAK+Co.