SECURE 2.0 is here

Late 2022 Congress and President Biden passed the Consolidated Appropriate Act. Referred to as SECURE 2.0, it expands on the provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act. Secure 2.0 was passed with the goal of substantially improving retirement savings options. Despite the breadth and depth of changes to retirement plans, there hasn’t been much media converge of the law. This article is aimed at summarizing what has changed and who is most likely to care.

If you are coming up on the age of retirement

SECURE 2.0 made significant changes to Required Minimum Distributions (“RMD”). RMDs requires that you regularly withdraw funds from your retirement account. The amount is calculated based on the fair market value of your retirement account and your current age. There are penalties if you do not meet the RMD. Here are the highlighted changes:

  • The age to start taking RMDs increased from age 72 to age 73 and will further increase to 75 in 2033
  • The penalty for failing to take meet RMD will decrease from 50% to 25% of the amount not taken.
  • The penalty for IRA accounts can be further lowered to 10% if corrective distributions are taken and corrected tax returns are filed timely.
  • RMDs will no longer be required from Roth accounts in employer retirement plans starting next year (2024).

Related to RMDs, SECURE 2.0 made changes to Qualified Charitable Distributions (“QCDs”). QCD allows you to meet RMD amounts without recording incurring taxable income by transferring the funds to a qualified charity. The limit is $50,000, and will be indexed with inflation.

Changes have been made to catch-up contributions. You are permitted to make $6,500 per year of “catch-up” contributions to your retirement account once you are above age 50. For those between ages 60 and 63, that will increase to $10,000 in 2025. Catch up contribution maximums will also be indexed to inflation.

If you are still a long ways off from retirement (or a new employee)

You can now receive employer matching contributions to Roth accounts (i.e., on after tax dollars, but earnings are tax-free). For reference, employer matching used to only be made to Traditional accounts (i.e., pre-tax basis, but earnings were taxed when withdrawn).

Starting in 2025, employees must be automatically enrolled in retirement plans once they become eligible. The starting contribution rate must be between 3% and 10%. There is still the option to opt out, but the hope (supported by studies) is that the requirement to opt out rather than opt in will increase participation in retirement plans.

Starting next year (2024), employers will be able to “match” payments of student loan debt as if it were a contribution into a retirement account. This makes it easier for employees to start up their retirement savings while also paying off student debt.

There are 94 provisions in SECURE 2.0, and this is only intended to be a summary of the more broad-reaching changes made. For example, there are other changes to tax credits for small businesses setting up new retirement plans, eligibility requirements for long-term, part-time employees.