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On Dec. 29, 2022, the Omnibus Appropriations package was signed into law, introducing over 90 new provisions to enable employees and employers alike to establish or update their retirement plans and strategies. Through these new provisions, working Americans now have access to tools and benefits to help them achieve better financial security during retirement. This guide is designed to help you understand how the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 will affect your financial and retirement objectives as well as provide you with the information you need to plan for the future.
- Changes to required minimum distributions (RMDs) (2023-2024 & 2033)
- Employer contributions to be offered to employees on a Roth basis (2023)
- Failure to timely transmit participant contributions and loan repayments can be corrected without submission to the IRS (2023)
- Learn how the SECURE Act 2.0 may impact small businesses (2023-2025)
- Catch-up contribution changes (2024-2025)
- Student loan payment matching (2024)
- Distribution of excess 529 assets to Roth IRAs (2024)
- SIMPLE and SEP contributions to be made on a Roth basis (2024)
- Expansion of automatic enrollment for most retirement plans (2025)
- Benefits for part-time and low to middle-income workers (2025 & 2027)
- Emergency plan modifications through a 401(k) plan (TBD)
Changes to the required distribution age (2023-2024 & 2033)
Under current legislation, the annual required minimum distributions are set to begin at age 72. However, with the passage of the SECURE Act 2.0, this age was pushed up to 73 in 2023, and is expected to be pushed up to age 75 in 2033. Additionally, the penalty for not making a required minimum distribution is going to be modified starting in 2024.
The penalty for not taking an RMD has been reduced to 25% of the RMD amount, (from 50%), and 10% if fixed promptly. Furthermore, Roth accounts in 401(k) plans (not the same as Roth IRAs, which don't require RMDs throughout the owner's lifetime) and other employer-sponsored plans will be exempt from RMDs starting in 2024. Right away, for in-plan annuity payments that exceed the participant's RMD amount, the extra annuity payment can be used for the next year's RMD.
The penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely fashion.
Permitting all employer contributions to be offered to employees on a Roth basis (2023)
Effective immediately, employers can allow employees to elect for some or all of their vested matching and non-elective contributions to be treated as Roth contributions under a 401(k), 403(b), or governmental 457(b) plan.
Failure to transfer participant contributions and loan repayments on time can be amended without submitting these change requests to the IRS (2023)
Effective immediately, failure to transfer participant contributions and loan repayments on time may be fixed under the IRS' Employee Plans Compliance Resolution System (EPCRS) without having to submit these amendments to the IRS. This does not apply if the IRS discovers the violation on an audit or if the correction is not completed within a reasonable period of time.
Catch-up contribution increases and changes for earners over $145,000 (2024-2025)
Catch-up contributions let you put more money in your retirement savings than what's usually allowed in a given year. This could help those who have been slow to start saving, or have yet to save, to make up for lost time and reach their retirement goals. There are two major updates to these catch-up contributions. Starting in 2024, any catch-up contributions from people earning over $145,000 annually (indexed) must be made on a Roth-basis, or after-tax basis. This does not affect SIMPLE plans.
Additionally, beginning Jan. 1, 2025, those ages 60-63 can contribute up to $10,000 (indexed after 2026) or 150% of the standard catch-up contribution (whichever is greater) towards their workplace plan. For SIMPLE Plans, that amount is $5,000 or 150% of the regular SIMPLE catch-up ($5,520 in 2023), whichever is greater.ii
Anyone aged 50 or above is allowed to make catch-up contributions to a 401(k), which was set at $6,500 in 2022 and increased to $7,500 in 2023. On top of that, the regular contribution limit for a 401(k) was $20,500 (2022) and has risen to a maximum of $22,500.iii
Matching contributions for student loan payments (2024)
For some students, committing to making student loan payments can be challenging; however, the SECURE Act 2.0 has implemented a new rule intended to urge younger workers to start saving for retirement. Beginning in 2024, employers will have the allowance to match contributions under a 401(k), 402(b) or SIMPLE IRA plan, or a section 457(b) plan when participants are making loan repayments. Furthermore, government employers may also be able to make comparable contributions in plans that follow this policy of repayment.
Distribution of excess 529 assets to Roth IRAs (2024)
Starting in 2024, unused funds in a 529 qualified tuition plan can be distributed tax-free to a Roth IRA. The amount allowed depends on which is lower, either the normal Roth IRA limits (without income limits) or the total amount from the 529 accounts over the last five years plus any earned interest. The beneficiary must remain the same for at least 15 years and there is a lifetime limit of $35,000 per beneficiary.
Allowing SIMPLE and SEP contributions to be made on a Roth basis (2024)
Effective for tax year 2024, SIMPLE and SEP contributions for employees and employers can be made on a Roth basis. The employee must elect for Roth treatment.
Required automated enrollment and automated escalation for most new retirement plans (2025)
Starting in 2025, all new 401(k) and 403(b) plans must automatically enroll all eligible participants with a minimum of 3% and a maximum of 10% of their eligible compensation. Plus, an automatic increase of one percentage point each year up to at least 10%, but no more than 15%.
Plans that were in place prior to the enactment of this law won't have to comply with its regulations. There are exemptions for government plans, church plans, employers with 10 or fewer employees, and businesses that are brand new and have been operating for three years or fewer. This bill doesn't make employers set up a plan; it only applies to those who choose to do so.
Benefits for part-time and low to middle-income workers (2025 & 2027)
As of 2025, part-time employees will be able to take advantage of employer-sponsored retirement plans after working two consecutive years and logging at least 500 hours of service each year. This is a change from the SECURE Act's three-years-of-service rule. Today's workplace has a high number of part-time workers, so this new requirement could benefit a large portion of the workforce.
Starting in 2027, the SECURE Act 2.0 will amend the current Saver's Credit, which provides millions of low and middle-income people with a “Saver's Match,” or a federal matching contribution deposited to a taxpayer's IRA or retirement plan to motivate folks to save for retirement. The change in the legislation modifies how you get the credit; instead of receiving it as a reduction to your tax liability when you submit your tax return, the Feds will deposit a matching contribution into your retirement account. You get to decide where it goes; however, Roth accounts aren't allowed along with a couple other restrictions.iv
Building financial confidence through an emergency fund (TBD)
In life, unexpected expenses sometimes make it difficult to stick to a budget. If there isn't enough liquid cash available, one may be tempted to withdraw from their retirement savings. To help ease this burden, two changes have been proposed in the existing retirement legislation. The first one permits employers to automatically enroll employees in an emergency savings plan of up to $2,500 after tax each month. This way, the employee's payroll deduction can be diverted towards the emergency savings fund.
Should they need funds to cover unexpected expenses, retirement plan participants would be allowed to take out up to $1,000 from their retirement savings each calendar year without penalty.
Introducing an emergency savings option within a retirement plan is a progressive move which can help employees recognize the significance of setting aside funds for both urgent (emergency) and long-term (retirement) goals.
We recommend talking to a financial advisor to help you understand the changes and figure out what could work best for your retirement goals and plans. With all the new and adjusted options both available now and coming soon, they can help you make sense of it all.
Talk to a Financial Advisor
Financial advisors at BECU Investment Services are here to help. Our team will take the time to get to know you, understand your goals and plan and implement a financial and retirement strategy that's appropriate for you. Set up a complimentary consultation or call 206-439-5720 today.
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The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.
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i5 RMD Changes Looming With Passage Of SECURE 2.0 Act (forbes.com)
iiSecure 2.0 Top 10 provisions (brandfolder.io) (PDF)
iii401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500 | Internal Revenue Service (irs.gov)
ivRetirement Saver's Tax Credit Converted to "Saver's Match | Kiplinger
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