We welcome the New Year with a new law aimed at changing the way we think about retirement savings. President Biden signed the SECURE 2.0 bill on December 29, 2022, making the retirement package law. The package includes 90+ new provisions, including those designed to broaden access to workplace retirement plans and raise the age when required minimum distributions begin. Here are the top 10 takeaways we want you to be aware of.
The age to start taking required minimum distributions (RMDs) from any retirement account (IRAs, 401ks and other defined contribution plans) increases to age 73 beginning January 1, 2023, and again to age 75 beginning January 1, 2033. This means that anyone turning age 72 in 2023 will not be required to take their first RMD until April 1st of the year following the year they turn age 73.
The penalty for failing to take required minimum distributions (RMDs) will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely manner for IRAs.
Starting in 2024, required minimum distributions (RMDs) will no longer be required from Roth accounts in employer retirement plans.
People who are age 70½ and older may elect as part of their qualified charitable distribution (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 is an expansion of the type of charity, or charities, that can receive a QCD.
Catch-up contributions for those aged 60 through 63 will increase to $10,000 in 2025 for 401(k), 403(b), governmental plans. IRA account holders aged 50 and over have a $1,000 catch-up contribution limit that will be indexed to inflation starting in 2024. Beginning in 2024, all catch up contributions for those earning over $145k for the prior year must be made as Roth contributions. Therefore, plans must have a Roth source to allow catch up contributions.
Previously, matching in employer-sponsored plans were made on a pre-tax basis. Employers will now be able to provide employees the option of receiving vested matching contributions to Roth accounts, although it may take time for plan providers to offer this and for payroll systems to be updated.
Defined contribution retirement plans will be able to add an emergency savings account (Plan-Linked Emergency Savings Account) associated with a Roth account for non-highly compensated employees only. Contributions must be invested for principal preservation, would be limited to $2,500 annually (or lower, as set by the employer), and may be eligible for an employer match. The first 4 withdrawals in a year would be tax- and penalty-free.
Starting in 2024, employers will be able to "match" employee student loan payments with matching payments to a retirement account, giving workers an extra incentive to save while paying off educational loans.
403(b) plans can now use collective investment trusts and participate in multiple and pooled employer plans.
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. Rollovers cannot exceed the aggregate before the 5-year period ending on the date of the distribution. The rollover is treated as a contribution towards the annual Roth IRA contribution limit.
Source: (1) https://www.fidelity.com/learning-center/personal-finance/secure-act-2
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