SECURE Act 2.0: What You Need to Know

By Christopher L. Hudson, CIMA

The Setting Every Community Up for Retirement Enhancement Act 2.0 (SECURE Act 2.0), was signed into law on December 29th, 2022 as part of the Omnibus Spending Bill. It has a number of key components impacting how Americans plan for, and live in, retirement. Some of the key features to be aware of are:

• An increase in the age Required Minimum Distributions (RMD’s) begin. Starting this year, the age for Required Minimum Distributions increases from 72 to 73. This means that individuals born between 1951 through 1959 will not have to start taking RMD’s until the age 73. For individuals born in 1960 and beyond, the RMD age will be pushed back to 75 beginning in 2033.


• The elimination of Required Minimum Distributions from Roth 401(k)’s. Beginning in 2024, Required Minimum Distributions will no longer have to be taken from Roth 401(k) plans. Roth IRA’s continue to be exempt from RMD’s.


• A reduction in the penalty for missing Required Minimum Beginning this year (2023), the penalty for not taking the correct Required Minimum Distribution (RMD) is reduced from 50% of the RMD amount to 25%. Additionally, it can be reduced to just 10% if the mistake is corrected in a timely manner.


• Qualified Charitable Distributions will now be indexed for inflation. Qualified Charitable Distributions (QCD’s), which are currently capped at $100,000, will be indexed for inflation beginning in 2024. QCD’s are distributions made directly from an IRA account to a qualified charity (beginning at age 70 ½) which, if executed correctly, is not included in the donor’s adjusted gross income up to a distribution of $100,000. You cannot take a charitable deduction for the distribution but for those who are RMD age, the distribution can be counted towards their Required Minimum Distribution for the year.


• Auto-enrollment for new plans beginning in 2025. Starting in 2025, new 401(k) and 403(b) plans will begin auto-enrolling participants with a minimum deferral rate of 3% but not more than 10%. Unless the employee opts out, deferrals will continue to increase by 1% per year to a maximum of 15%.


• Qualified student loan payments will qualify as salary deferrals for company match. Beginning in 2024, employers have the option of making matching contributions to an employee’s retirement plan account based on the participant paying off their student loans.


• Additional catch-up contributions beginning at age 60. Starting in 2025, retirement plan participants can increase catch-up contributions to their company retirement plan at age 60, 61, 62 and 63. The amount of the additional contribution will be the greater of $10,000 or 150% of the maximum catch-up amount in place in 2025. The current catch- up amount, for participants age 50 or older, is $7,500.


• New requirements for catch-up contributions into a Roth 401(k). Beginning in 2024, participants with income over $145,000 in the previous year, will have to direct all catch-up contributions into a Roth 401(k) and not the traditional, pretax, 401(k) plan.


• Employer matching contributions will be eligible to be deposited in a Roth 401(k). If the plan permits, participants can direct employer matching contributions to be made to their Roth 401(k) plan and not simply to their traditional 401(k) as in the past.


• A new Roth IRA rollover option for unused 529 funds. Beginning in 2024, up to $35,000 in unused 529 funds (over a lifetime) can be contributed to a Roth IRA account in the name of the 529 beneficiary. The 529 plan must have been open for at least 15 years and no contributions, earnings or growth over the past 5 years can be contributed to a Roth. The rollover amount may not exceed the maximum contribution limit to a Roth IRA account in one year (including other IRA contributions) and the beneficiary must have earned income in the year of the rollover. The income limit for making a Roth IRA contribution does not apply.


• Exceptions to the 10% early withdrawal penalty from qualified plans. Starting in 2024, an emergency distribution of up to $1,000 can be made each year and will not be subject to the 10% early withdrawal penalty. Subsequent emergency withdrawals will not be permitted unless the previous year’s withdrawal has been repaid into the plan. Additional exceptions to the 10% early withdrawal penalty will apply to the victims of domestic abuse and in the case of a terminal illness (the lesser of $10,000 or 50% of the plan balance). Additionally, plan participants facing a qualified federal disaster will have increased, penalty free, access to retirement plan funds.

If you have any questions regarding the new legislation and how it may impact your retirement savings, or if you would like to schedule a call to discuss your current strategy and how to best leverage the new rules, please let us know.

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Any opinions are those of Christopher Hudson and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.