SECURE 2.0 and Retirement Planning Updates

January 9, 2023. By Olga Okaty:

President Biden recently signed into law the SECURE 2.0 spending bill, which includes many new provisions affecting retirement plans. With the bill covering a broad array of planning topics, we want to keep you informed regarding these changes and their potential impact on your financial plan and retirement strategy.  Below are some of the key takeaways of the SECURE 2.0 Act:


Changes Taking Effect Immediately

  • RMDs: The age for starting required minimum distributions from retirement accounts (currently 72) increases to 73 in 2023 and 75 in 2033.  Therefore, those turning 72 in 2023 will not need to start RMDs until 2024.  Additionally, beginning in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.  These changes do not apply to individuals who have already reached their RMD age. 
  • Employer-based Emergency Savings Account: Unless an employee opts out, employers can automatically opt workers into a savings account, contributing no more than 3% of the employee’s salary, up to $2,500 total.  Contributions to these accounts are made with after-tax money, and withdrawals are tax-free.
  • 401(k) Hardship Withdrawals: Employees can take one penalty-free 401(k) distribution per year of up to $1,000, with the option to repay the distribution within three years. These withdrawals can be used for medical expenses, funeral expenses, or tuition and related educational expenses. However, a withdrawal must be due to an “immediate and heavy financial need,” according to the IRS.
  • Part-time Hours: Part-time workers now only need to work between 500 and 999 hours for two consecutive years to be eligible for their company’s 401(k) plans, rather than the previous requirement of three consecutive years.


Changes Taking Effect in 2024 and 2025

  • Automatic Enrollment in Retirement Plans: Starting in 2025, employers will be required to automatically enroll employees in 401(k) and 403(b) plans at a rate of 3-10% of their salary.  Employees will have the option to opt-out.  Exceptions include small businesses with fewer than ten employees, churches, and governmental plans.
  • Student Loan Repayments: Beginning in 2024, student loan payment amounts will be eligible for employer matching, similar to matches currently available for some retirement accounts.
  • Catch-up Contributions: Starting in 2025, employer plan participants 60 to 63 can direct an extra $10,000 annually towards their 401(k) or 403(b) plans.  Currently, participants who are 50 or older can contribute an additional $7,500.  Similarly, the current $1,000 catch-up contribution limit for IRAs will be indexed for inflation beginning in 2024. 
  • 529 Plan Rollovers.  Beginning in 2024, 529 plan participants will be able to roll over 529 plan funds tax-free to a Roth IRA in the beneficiary’s name.  The rollover amount is capped at $35,000 over the beneficiary’s lifetime and the 529 must have been open for at least 15 years. The beneficiary must also comply with annual Roth contribution limits.
  • Increased Qualified Charitable Distribution Limit. Anyone over age 70 ½ can gift up to $100,000 annually to charity from an IRA through a Qualified Charitable Distribution (“QCD”).  This amount can satisfy an RMD and is excluded from taxable income. Beginning in 2024, the $100,000 QCD limit will be indexed for inflation. While typically these types of distributions can only be made to qualified charities, SECURE 2.0 permits a one-time $50,000 gift to a charitable trust or gift annuity.  Gifts to donor-advised funds and private foundations are still excluded.

Our Financial Planning team is well-versed in these changes and the impact they may have on client portfolios and retirement savings strategies.  Please do not hesitate to reach out to us with any questions or if you would like to schedule a plan update in the new year.