What the Secure 2.0 Act Means for Retirement Planning
Key Points:
The Secure 2.0 Act of 2022 expands retirement saving opportunities, provides greater flexibility for accessing funds, and incentivizes employers to provide retirement plans.
There are 92 provisions in the new legislation, including an increased age threshold for taking required minimum distributions, automatic 401(k) enrollment, tax credits for employers, and student debt retirement contributions.
Some provisions went into effect on January 1, and more will become effective in the years ahead.
The amount needed to retire comfortably has grown significantly in recent decades due to rising costs of living and increasing life spans. Despite this, many Americans aren’t maximizing their retirement savings — which means the retirement savings gap is continuing to widen.
If you’re worried about affording retirement, you’re not alone. But the good news is, Congress has taken steps in recent years to combat this problem. The Securing a Strong Retirement Act, known as Secure 2.0, was signed into law in December of last year, and it includes many provisions that will make it easier for you to prepare for a financially sound future.
What is Secure 2.0?
Signed into law in December of 2022, Secure 2.0 builds upon the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, which was similarly aimed at improving retirement saving opportunities and regulations. The newer legislation features additional provisions to help increase retirement savings and expand accessibility.
Key Secure 2.0 Provisions
Secure 2.0’s provisions will benefit Americans at various ages and stages — from younger generations with student loan accumulation to those approaching retirement who need to quickly amp up retirement savings. Here’s a look at some of the main provisions:
Updated Required Minimum Distribution (RMD) Rules
The age when retirement account holders must begin making annual withdrawals from their pre-tax retirement accounts has increased from 72 to 73 — and in 2033, it will increase to 75. This presents an opportunity for retirement savers to further postpone taxable distributions and implement proactive tax planning strategies, such as Roth conversions. Additionally, beginning in 2024, Roth 401ks are no longer subject to RMD requirements.Secure 2.0 also changes RMD penalties. The penalty for failing to take an RMD in time has dropped from 50% of the undistributed amount to 25%. And if the missed RMD is corrected within the correction window, the penalty is further reduced by 10%.
Auto-Enrollment in 401(k) plans
Beginning in 2025, most employers will be required to automatically enroll employees in new 401(k) or 403(b) plans. Currently, automatic enrollment is optional for employers to implement, and as a result, many employees have been losing out on retirement savings.Tax & Penalty Free Transfers from 529 Plan to Roth IRA
Starting in 2024, individuals will be able to roll over a portion of their unused 529 assets to a Roth IRA for the account owner’s beneficiary. This is a great option for parents who would like to help their children start saving for retirement earlier.To qualify for the tax-free rollover, the 529 plan account must have been open for at least 15 years. Additionally, any contributions made to the 529 plan within the last five years are not eligible. Transfers will count toward the annual IRA contribution limit (currently $6,500 for individuals under the age of 50), and there is a lifetime transfer limit of $35,000.
Student Loan Payment Matching
This provision enables employers to make plan contributions that match the amount of loan debt repaid by the employee — even if the employee is not themselves contributing to their retirement plan.Increased Catch-Up Contribution Limits
Catch-up contributions allow those 50 and older to exceed the standard maximum contribution amount of their retirement plan. Currently, those 50 and older can contribute up to $7,000 per year. But beginning in 2025, an increased catch-up limit has been added for those between 60 and 63. These individuals will be able to contribute up to $10,000 per year (indexed for inflation) or 150% of the standard catch-up amount for that year, whichever is greater.Additional Changes to Employer Plans
Several changes have been made that will give people more control over their retirement and enable them to pursue strategies that are best suited to their situation.
One such change is that employers now have the ability to make matching Roth contributions. Previously, employer matches could only be deposited into the pre-tax portion of a retirement account. This gives retirement savers the ability to choose between a pre-tax or Roth company match based on their preferences.
Another welcome change is that self-employed individuals or small business owners can now make Roth contributions to SEP and SIMPLE IRAs.
Make the Most of Your Retirement Plan With Secure 2.0 Provisions
The new Secure 2.0 provisions pose new opportunities to boost your retirement savings — no matter what stage of life you’re currently in. Working with an experienced wealth advisor like Capstone will help you navigate the new legislation and achieve your retirement goals.
Disclosures:
This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.