SECURE 2.0

The last-minute 2022 legislation signed into effect on 12/29/2022 contains many components, but within the 4,000-plus page bill, one section is particularly important regarding your retirement. Below is a summary of the SECURE 2.0 Act of 2022, which builds on the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019. Within the new SECURE 2.0, there are 19 pages of more than 90 changes affecting qualified retirement plans, IRAs, SIMPLEs, SEPs, ABLEs, and 529 plans. 

This summary provides several highlights based on effective dates and relevance. Please connect with your advisor or tax preparer to learn more.

RMD’s

Age Increased, Penalty Decreased

The age at which required minimum distributions (RMD) must begin has increased from 72 to 73 starting in 2023 and will increase again in 10 years (2033) to age 75. Previously the penalty for not taking an RMD on a qualified plan or IRA was 50% of the amount not taken. The new excise tax percentage is now 25% or, in some cases, 10%. 

Roth Option

Employer Contributions

Employers can allow employees to choose whether to take employer matching and nonelective contributions on a Roth after-tax or pretax basis. Previously the contribution was only available as pretax. In addition, the employer may deduct Roth contributions, while employees take Roth contributions as income. Given the timing of this passage, your employer will undoubtedly need time to interpret and make administrative changes to their procedures. If you are still waiting to hear from your employer in the coming weeks about these changes, you may want to reach out.

Playing Catch Up

Higher Contributions

Starting January 1, 2025, individuals ages 60 through 63 can make catch-up contributions of up to $10,000 annually to workplace plans like 401(k), 403(b), governmental plans, and IRA accounts. Income and age limits apply. Expect amounts to change over time as contributions are indexed to inflation.

Education Plans

529 Roll Overs

After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000. The rollover is treated as a contribution towards the annual Roth IRA contribution limit. This is a great option for those unused 529 dollars that may be lingering in your account.  

Philanthropy Expanded

Qualified Charitable Distributions (QCD)

Beginning in 2023, people aged 70½ and older may elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. This amount counts toward the annual RMD, if applicable. 

As you can see, the SECURE 2.0 Act has many provisions, with several that will come into effect over the next few years. We will continue to monitor updates and send out future communications as more details come into effect.

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