The significant retirement legislative package known as “SECURE 2.0” was passed on December 23, 2022 as part of the 2022 omnibus appropriations bill. The legislation is an important step forward in providing more Americans with greater retirement security. Within its 350+ pages of legislative text, the SECURE 2.0 includes 92 provisions, aimed at expanding retirement coverage and increasing retirement savings, preserving income, and simplifying and clarifying retirement plan rules.
9 Key Takeaways include:
1. Required Minimum Distribution (RMD) age increase: Required Minimum Distribution age is increased to age 73 starting on January 1, 2023 and age 75 starting on January 1, 2033.
2. Higher catch-up limit at ages 60-63: Catch-up contributions increase to $10,000 in 2025 (possibly more under inflation indexing) for participants aged 60-63 (i.e., attained age for the entire tax year is at least 60 and not yet 64).
3. Matching student loan repayments: Employers can make matching contributions into their qualified retirement plans (401(k), 403(b), SIMPLE IRA) for employee repayments made on qualified student loans for higher education without hurting the employer’s nondiscrimination testing. Effective plan years after December 31, 2023.
4. Long-Term Part-Time Eligibility Accelerated: Changes eligibility from three consecutive years of 500 hours worked to two consecutive years. Also extends the long-term part-time coverage rules to 403(b) plans that are subject to ERISA. Effective plan years after December 31, 2024.
5. Treatment of Matching or Contributions as Roth: Provides participants with the option of matching contributions on deferrals or student loan repayments to be treated as Roth contributions (including taxability). Effective on the enactment of Act.
6. No penalty emergency withdrawals:10% excise tax will not apply to distributions used for emergency expenses which are unforeseeable or immediate financial need (personal or family emergency expenses). One distribution per year, up to $1,000, and repayable within 3 years (no additional emergency distributions during this period unless repayments made). Effective for distributions after December 31, 2023.
7. Catch-Up Contributions Treated as Roth: All catch-up contributions will be subject to Roth treatment (unless the employee has compensation equal to or less than $145,000 indexed). Effective taxable years after December 31, 2023.
8. 529 Rollover to Roth: Tax- and penalty-free rollover of unused dollars (up to $35,000) from 529 accounts to Roth IRA over lifetime of beneficiaries. Subject to Roth IRA annual limits and 529 accounts must have been open for more than 15 years. Effective for distributions after December 31, 2023.
9. Increasing access to, and participation in, retirement savings plans by expanding automatic enrollment, encouraging small businesses to start a retirement plan via new and enhanced tax credits, and enabling 403(b) plans to participate in multiple employer plans (MEPs).
SECURE 2.0 is seen as building upon or enhancing the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act). SECURE 2.0 is not the end—there will be more retirement legislation in the coming years. But the combination of SECURE 1.0 and 2.0 presents us with a toolset that, we predict, will play a major role in spurring a wave of new plan formation among small businesses and rising participation and savings rates across the system.
While some provisions become effective in 2023, a number of provisions will become effective in 2024, 2025 or later years. To view the full SECURE 2.0 highlights, click below.
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