As you may know, the Setting Every Community Up for Retirement Enhancement Act 2.0 or “SECURE Act 2.0” was passed by Congress and signed into law by President Biden on December 29, 2022. This law builds on the original SECURE Act that was passed and signed into law back on December 20, 2019. The legislation provides a slate of changes that could help strengthen the retirement system—and Americans’ financial readiness for retirement.
Here is a summary of some of the key points of the latest legislation. While some of the changes became effective on January 1, 2023, a number of these provisions do not become effective for a few years. Please note, this is not an exhaustive list, instead our aim is to bring to forefront some key retirement changes that may impact you.
RMD (Required Minimum Distribution) Age Pushed Back (Again) (effective 1/1/2023)
RMD age will increase to 73 for 2023. It will rise to 75, but not for another decade (in 2033). If you turned 72 in 2022 or earlier, you would need to continue taking RMDs as scheduled. This change could provide additional years to implement Roth conversions during lower tax bracket years before RMDs must begin (years between retirement and RMD age generally deemed the “golden window”).
Roth Contributions for SEP and SIMPLE IRAs (effective 1/1/2023)
SEP and SIMPLE plans can allow Roth contributions beginning in 2023. Previously, SEP and SIMPLE plans could only include pre-tax funds.
Penalty for missed RMDs reduced (effective 1/1/2023)
The hefty 50% penalty for missed RMDs is reduced to 25%. If the missed RMDs are corrected in a timely manner, the penalty is further reduced to “only” 10%.
Rollovers from 529 plans to Roth IRAs (effective 1/1/2024)
In response to concerns that unused funds could be trapped in a 529 plan, Congress is allowing 529 plan assets to be rolled over to a Roth IRA for the beneficiary (of the 529 plan) after the plan has been open for more than 15 years, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000.
IRA Catch-Up indexed (effective 1/1/2024)
Individuals who are age 50 or over can make an additional catch-up contribution of $1,000. This amount will be indexed for inflation starting in 2024 (previously was not indexed for inflation).
Mandatory “Rothification” of Catch-up Contributions for High Wage Earners (effective 1/1/2024)
The trend toward “Rothification” continues as Congress seeks immediate tax revenue. Effective for tax years beginning 2024, all catch-up contributions to 401(k), 403(b), and governmental 457(b) plans for age 50 and over employees whose wages exceed $145,000 (indexed) in the prior year must be made on a Roth (after-tax) basis. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement. The new rule applies to catch-up contributions for 401(k), 403(b), and governmental 457(b) plans, but not to catch-up contributions for IRAs, including SIMPLE IRAs.
No RMDs for Roth 401(k) / 403(b) / 457(b) Account Owners (effective 1/1/2024)
Roth IRA owners are not required to take distributions during their lifetime. However, plan participants are subject to RMDs from designated Roth accounts in employer retirement plans (Roth 401(k), Roth 403(b) and Roth governmental 457(b) accounts). SECURE Act 2.0 repeals the RMD requirement for designated Roth account participants. As a result, beginning in 2024, employees may decide between keeping their assets in a designated Roth account within an employer retirement plan or rolling them over to a Roth IRA without having to consider RMDs during their lifetime. Key factors in making this decision will be the availability of desired investment choices, investment expenses and asset protection.
Expanded QCDs (effective 1/1/2023 for One-Time $50k QCD and 1/1/2024 for indexing for inflation)
A one-time, $50,000 qualified charitable distribution (QCD) to a charitable gift annuity, charitable remainder unitrust, or a charitable remainder annuity trust is permitted. The QCD limit of $100,000 will be indexed for inflation (for the first time) beginning in 2024. Individuals can still make QCDs starting at age 70 ½.
Supercharged Plan Catch-up Contributions (effective 1/1/2025)
Effective for tax years beginning 2025, catch-up contributions will be increased to the greater of $10,000 or 150% of the “regular” age 50 catch-up contribution amount (indexed for inflation) for individuals who reach ages 60, 61, 62, or 63 (early 60s) during the year.
Don’t hesitate to reach out if you’d like to explore how these changes might impact your personal situation!