Secure 2.0: 10 Retirement Changes You Should Know About

Alexis Woodward, CFP®
Focused businesswoman nearing retirement writing in notebook during work in office

Retirement can be one of the most important decisions you make in your lifetime and with SECURE Act 2.0, the there are some major retirement updates that you need to know about. In this blog, we’ll take a look the top 10 key provisions that you should know about so that you can maximize retirement planning opportunities created by SECURE 2.0.

1. RMDs are Pushed Back Again to Age 75 in Secure 2.0

The federal government has announced another delay in required minimum distributions (RMDs) for retirement account holders. RMDs are typically required beginning at age 72, but the new delay pushes that back to age 75 for those born in 1960 or later.

This is good news for those who are still trying to recover from the economic downturn over the last several years. It gives them a little more time to grow their retirement savings before having to start taking withdrawals.

The RMD beginning ages for those born in:

·       1950 or earlier - 72

·       1951 - 1959 - 73

·       1960 or later - 75

 

2. No More RMDs for Roth Accounts

 

Did you know that Roth accounts in qualified plans are required to take RMDs? Roth IRAs are not subject to RMDs during the owner's lifetime, but employer plan Roth accounts such as Roth 401(k)s, Roth 403(b)s and Roth 457(b)s currently are.

However, SECURE Act 2.0 eliminates RMDs for Roth accounts in these qualified employer plans starting in 2024.

 

3. Roth Simple and SEPA IRAs

 

SECURE Act 2.0 gives taxpayers 2 new opportunities for Roth contributions. SIMPLE Roth IRA accounts and SEP Roth IRA accounts can now be created for 2023 and beyond.

Previously, SIMPLE and SEP plans could only hold pre-tax funds. It will take some time for employers, custodians and IRS to implement the procedures and policies to be able to elect Roth contributions.

 

4. Roth Employer Contributions

 

SECURE Act 2.0 continues the theme of expanding available options for getting money into Roth accounts. Employers will now be able to deposit matching and/or nonelective contributions to employees’ designated Roth accounts (i.e. Roth accounts in 401(k) and 403(b) plans).

The employer Roth contributions will be included in the employee's income in the year of contribution. The employer contribution must not be subject to avesting schedule.

Profit sharing contributions cannot be Roth contributions and still remain pre-tax.

 

5. 529 to Roth IRA Transfers

 

Anew transfer pathway was created by SECURE 2.0. Beginning in 2024, you can move529 plan money directly to a Roth IRA. The following conditions must be met forthe transfer to be valid:

·       The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan

·       The 529 plan must have been in place for at least 15 years

·       Any contributions to the 529 plan within the last 5 years (and the earnings on those contributions) are ineligible to be moved to a Roth IRA

·       The annual limit for how much can be moved from a 529 plan to a Roth IRA is the IRA contribution limit for the year. Youcan't also contribute to a Roth IRA and double up your contribution

·       The maximum amount that can be moved from a529 plan to a Roth IRA during an individual’s lifetime is $35,000

 

6. Surviving Spouse Beneficiaries

 

When a surviving spouse inherits a retirement account from a deceased spouse, they have different options that aren't available to any other beneficiary. SECURE 2.0 now adds the additional option to choose to be elected to be treated as the deceased spouse beginning in 2024.

Making this election would provide the following benefits to the surviving spouse:

·       RMDs for the surviving spouse would be delayed until the deceased spouse would have reached RMD age

·       Once RMDs are necessary (the year the decedent would have reached RMD age, had they lived), the surviving spouse will calculate RMDs using the Uniform Lifetime Table that is used by account owners, rather than the Single Lifetime Table that applies to beneficiaries

·       If the surviving spouse dies before RMDs begin, the surviving spouse’s beneficiaries will be treated as though they were the original beneficiaries of the account (which would allow any Eligible Designated Beneficiaries to ‘stretch’ distributions over their life expectancy instead of being stuck with the 10-Year Rule that would otherwise apply).

 

7. Catch Up Contributions

 

SECURE Act 2.0 will finally allow the IRA catch-up contribution limit to automatically adjust for inflation starting in 2024. Inflation adjustments will be made in increments of $100, so $1,200 will be the IRA catch-up contribution limit in the near future.

Effective for 2025 and in future years SECURE Act 2.0 increases 401(k) and 403(b)catch-up contribution limits for certain plan participants. Those ages 60, 61, 62, and 63 will have their plan catch-up contribution limit increased to the greater of $10,000, or 150% of the regular catch-up contribution amount.

Similarly, SIMPLE Plan participants who are age 60, 61, 62, or 63 will have their plan catch-up contribution limit increased to the greater of $5,000 or 150% of the regular SIMPLE catch-up contribution amount for 2025.

 

8. Qualified Charitable Distributions

 

The maximum annual QCD amount has always been limited to $100,000. Beginning in 2024, however, the QCD limit will change for the first time ever as it will be linked to inflation.

 

9. New Rules to Accessing Funds

 

There is a 10% penalty for distributions from retirement accounts taken prior to reaching age 59 ½. There's some exceptions to this rule, and SECURE 2.0 expands the list of exceptions to include the following:

·       Private-sector firefighters and corrections officers who separate from service in the year they turn 50 or older can take penalty-free distributions from their employer plans

·       Individuals with terminal illness

·       Victims of domestic abuse can withdraw up to the lesser of $10k or 50% of their vested balance

 

10. Emergency Savings Accounts

 

To help individuals save for unanticipated expenses, effective in 2024, SECURE 2.0creates a new type of “Emergency Savings Account”. These accounts will be linked to existing employer retirement plans with individual balances, such as401(k) and 403(b) plan accounts and have a max contribution limit of $2,500.

Only employees who are otherwise eligible to participate in the sponsoring employer’s retirement plan and who are not “highly-compensated” employees may contribute to such accounts.

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