SECURE 2.0 Act: Key Takeaways for Employees and Retirees
On December 29, 2022, President Biden signed H.R. 2617, theConsolidated Appropriations Act of 2023 (the Act), into law. The full text ofthe Act can be found here.
A large portion of this act, known as the SECURE 2.0 Act,focuses on making it easier for Americans to save for retirement. The provisionsof SECURE 2.0, some optional and some required, will become effective atdifferent times over the next several years.
While it is your employer’s responsibility to make you awareof these changes when they are implemented, it can be beneficial for you to beaware of these updates ahead of time so you can anticipate how these newopportunities will affect your retirement savings.
With 92 total provisions, SECURE 2.0 has something to offereveryone. Here are some of the most important changes to expect in the comingyears, whether you’re retired, close to it, or years from it.
For current and soon-to-be retirees
- Increased age for Required Maximum Distributions (RMDs) – Beginning in 2023, the age at which individuals must begin taking RMDs increases from 72 to 73 years. The age will increase again to 75 in 2033.
Next Steps: You may now choose to delay taking your first RMD until April 1 of the year following the year in which you reach age 73. However, if you turned 72 in 2022 or earlier, you need to continue taking RMDs as scheduled. If you're turning 72 in 2023 or later and you have already scheduled your withdrawal, you may want to consider updating your withdrawal plan to give your money more time to grow.
2. Reduced penalties for RMDs – Starting in 2023, the penalty for missed or inaccurate RMDs will be cut in half, from 50% of the amount not taken to 25%. If the missed RMD is corrected within two years, the penalty is reduced even further to 10%.
Next Steps: SECURE 2.0 acknowledges that mistakes are a part of life by reducing the penalty for those who miss an RMD or take too little. You can rest assured that even if you make a mistake, it won’t break the bank.
3. No RMDs for Roth accounts – Effective in 2024, RMDs will no longer be required for Roth 401(k) accounts. RMDs were already not required for Roth IRAs.
Next Steps: If you turn 73 in 2023,RMDs for your Roth 401(k) must still be made by April 1, 2024. All otherswill be exempt from this requirements starting in 2024.
4. Increased catch-up contributions – Starting in 2025, individuals aged 60 through 63 will be able to make catch-up contributions of the greater of $10,000 or 50% more than the regular age 50 catch up contribution limit annually to a workplace plan, and that amount will be indexed to inflation. The catch-up amount for people aged 50 and older in 2023 is currently $7,500.
Next Steps: Taking advantage of catch-up contributions is a great opportunity to save for retirement later in your career, and these contributions may also allow some individuals to move into a higher tax bracket. If you’ll be over the age of 60 in 2025, you’ll be able to make additional catch-up contributions. If you earn more than $145,000, these contributions must be made on a Roth basis. Furthermore, catch-up contributions to IRAs, currently limited to $1,000 per year, will be indexed to inflation starting in 2024.
5. Matching for Roth accounts – Beginning in 2023, individuals will be able to choose to have employer matching contributions directed to their Roth workplace accounts.
Next Steps: Consider directing your employer matching contributions to a Roth account, if your employer chooses to provide this benefit. Roth contributions are made on an after-tax basis, which allows your earnings to grow tax-free.
For people far from retirement
6. Automatic enrollment – Effective in 2025, employers with new plans will be required to automatically enroll employees into their retirement plan at a default rate of 3-10% unless the employee opts out.
Next Steps: There are a variety of reasons that you might not want to participate in your employer’s retirement plan, but a common reason is that you might simply forget to enroll. This provision is designed to make it easier for you to participate by eliminating the manual enrollment process. If you change employers in 2025, and that employer has a 401(k) plan that was established after December 29, 2022, you will be automatically enrolled into the plan. You will want to consider what percentage of your paychecks you would like to set aside for retirement, so that if you need to make an adjustment to the default rate chosen by your employer, you can do so in a timely manner.
7. Student loan payment matching – In 2024, employers can “match” employees’ student loan payments with payments to a retirement account.
Next Steps: If you have student loan debt, your employer may choose to provide these matching payments to help you save for retirement while you focus on paying off your debts. Even if you don’t currently contribute to a 401(k), you can still take advantage of this opportunity if provided by your employer.
8. 529 to Roth rollover – Starting in 2024, funds from a 529 college savings plan can be rolled over to a Roth IRA once the beneficiary is no longer withdrawing money for educational purposes.
Next Steps: Until now, when money was put into a 529 plan, it was essentially locked up forever, only to be used on qualified educational expenses. If you currently have an unused balance on your 529 plan, and if your plan will have been active for 15 years in 2024, you may want to consider rolling your balance over to an IRA.
9. Part-time employee eligibility – Beginning in 2025, part-time employees will qualify to participate in a plan once they have worked at least 500 hours per year for two consecutive years, instead of three years under the current law.
Next Steps: If you currently work part-time for at least 500 hours per year, you will be eligible to participate in your company’s retirement plan no later than 2025.
Investment advisory services provided through CBIZ Investment Advisory Services, LLC, a registered investment adviser and a wholly owned subsidiary of CBIZ, Inc.