The SECURE 2.0 Act: Comprehensive Retirement Reforms
By In December 2022, the SECURE 2.0 Act was passed – a package of retirement provisions providing comprehensive updates and changes to the SECURE Act of 2019.[0] The legislation is one of the most significant reforms to retirement law in recent history and levels the playing field for employers and employees when it comes to the accessibility and affordability of retirement plans.[1]
One key change for employers and 401(k) plan participants is the raise in the RMD age from 70 ½ to 73 years in 2023 and 75 in 2033. This change was made as people are living longer and have the need for their savings to last longer.[2] The SECURE 2.0 Act also requires that most employers automatically enroll their employees in any new 401(k) plans or 403(b) plans they open, with an initial default rate of between 3 and 10 percent, and an annual auto-escalation of 1 percent (up to at least 10 percent, but not more than 15 percent).[3]
Participants aged 50 or older must make catch-up contributions on a Roth basis for 401(k), 403(b), and governmental 457(b) plans.[4] However, the requirement applies only if the employee’s prior year wages from the employer sponsoring the plan exceed $145,000 in the previous taxable year. Furthermore, taxpayers between ages 60 and 63 will be able to make higher “catch-up contributions” to their retirement plans beginning in 2025.[5]
The SECURE 2.0 Act also expands eligibility for long-term part-time workers to contribute to their employer’s 401(k) plan. Starting in 2025, part-time employees who have been working for two consecutive years and have accrued at least 500 hours of service will be eligible to contribute to their employer’s retirement plan.[6]
In addition to these changes, employers will also be able to add an emergency savings account that is a designated Roth account eligible to accept participant contributions for non-highly compensated employees starting in 2024.[7] Contributions will be limited to $2,500 annually and the first four withdrawals in a year will be tax- and penalty-free.[8] Beneficiaries of 529 plans that have been in place for 15 years or more can transfer assets from the 529 plan to a Roth IRA, subject to the beneficiary’s annual contribution limit and up to a lifetime maximum of $35,000.[9]
0. “SECURE 2.0 Act Brings Slate of Changes to Employer-Sponsored Retirement Plans” Lexology, 31 Jan. 2023, https://www.lexology.com/library/detail.aspx?g=6136e5a4-00e6-4990-8e10-6955adcb2686
1. “SECURE 2.0 changes the retirement-plan landscape – Boston Business Journal” The Business Journals, 1 Feb. 2023, https://www.bizjournals.com/boston/news/2023/02/01/secure-2-0-changes-the-retirement-plan-landscape.html
2. “Money Talk: New 401k Rules – Texas Metro News” Texas Metro News, 1 Feb. 2023, https://texasmetronews.com/money-talk-new-401k-rules/
3. “The New Retirement-Savings Landscape” outsmartmagazine.com, 1 Feb. 2023, https://www.outsmartmagazine.com/2023/02/the-new-retirement-savings-landscape/
4. “PERSONAL FINANCE: Enhancing your retirement plan through the SECURE 2.0 Act [Column]” The Mercury, 5 Feb. 2023, https://www.pottsmerc.com/2023/02/05/personal-finance-enhancing-your-retirement-plan-through-the-secure-2-0-act-column/
5. “SECURE Act 2.0 Is Here” Wilson Sonsini Goodrich & Rosati, 30 Jan. 2023, https://www.wsgr.com/en/insights/secure-act-20-is-here.html
6. “What Women Need To Know About SECURE Act 2.0” Forbes, 3 Feb. 2023, https://www.forbes.com/sites/nataliecolley/2023/02/03/what-women-need-to-know-about-secure-act-20/
7. “SECURE 2.0 Changes to Retirement Savings: What You Should Know” Business News Daily, 1 Feb. 2023, https://www.businessnewsdaily.com/secure-2-retirement
8. “From RMDs to Student Debt, SECURE 2.0 Offers a Lot” CPAPracticeAdvisor.com, 1 Feb. 2023, https://www.cpapracticeadvisor.com/2023/02/01/from-rmds-to-student-debt-secure-2-0-offers-a-lot/76361/
9. “Introduction to Secure Act 2.0” The White Coat Investor, 2 Feb. 2023, https://www.whitecoatinvestor.com/introduction-to-secure-act-2-0-300/
