Amid the 1,650-page, $1.7 trillion omnibus spending legislation recently passed by Congress were several provisions affecting work-sponsored retirement plans and, to a lesser degree, IRAs. Dubbed the SECURE Act 2.0, the legislation is designed to improve the current and future state of retiree income in the United States.
What Does the Legislation Do?
The following is a brief summary of some of the most notable initiatives. All provisions take effect in 2024 unless otherwise noted.
- Later age for required minimum distributions (RMDs). SECURE 2.0 raises that age again to 73 beginning in 2023 and 75 in 2033.
- Reduction in the RMD excise tax. Current law requires those who fail to take their full RMD by the deadline to pay a tax of 50% of the amount not taken. The new law reduces that tax amount to 25% in 2023.
- No RMDs from Roth 401(k) accounts.
- Higher limits and looser restrictions on qualified charitable distributions from IRAs.
- Higher catch-up contributions.
- Roth matching contributions. The new law permits employer matches to be made to Roth accounts.
- Automatic enrollment and automatic saving increases. Beginning in 2025, the Act requires most new work-sponsored plans to automatically enroll employees with contribution levels between 3% and 10% of income.
- Emergency savings accounts. The legislation includes measures that permit employers to automatically enroll non-highly compensated workers into emergency savings accounts.
- Matching contributions for qualified student loan repayments.
- 529 rollovers to Roth IRAs.
- New exceptions to the 10% early-withdrawal penalty.
- Low- and moderate-income savers currently benefit from a tax credit of up to $1,000 ($2,000 for married couples filing jointly) for saving in a retirement account. Beginning in 2027, the credit is re-designated as a match that will generally be contributed directly into an individual's retirement account.
- More part-time employees can participate in retirement plans.
- Rules for lifetime income products in retirement plans.
- Retirement savings lost and found. The Act directs the Treasury to establish a searchable database for lost 401(k) plan accounts within two years after the date of the legislation's enactment.
- Military spouses. Small businesses that provide immediate enrollment and vesting to military spouses in an eligible retirement savings plan will qualify for new tax credits. This provision takes effect immediately.
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