February 14, 2023

Highlights from the Recently Passed SECURE Act 2.0

Included as part of the Consolidated Appropriations Act, 2023, the SECURE 2.0 Act of 2022 was signed into law on December 29, 2022.  A follow up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, SECURE 2.0 includes numerous updates, tweaks, and changes to retirement savings legislation. 

The full text of the Consolidated Appropriations Act, 2023 (1,653 pages) can be accessed here. The SECURE Act 2.0 section can be found in pages 817 – 946.

The MUCH more accessible The SECURE Act 2.0 summary (19 pages) is available here.

For the fully condensed option, below, we summarized the sections we felt would be most pertinent to our readers.

Section 107: Increase in Required Minimum Distribution (RMD) Beginning Age. In 2023, the age to start taking RMDs will increase to 73.  Beginning in 2033, it will increase to 75.

Section 108: Inflation Indexing of IRA Catch-Up Contributions. Currently, those age 50 and over can contribute an additional $1,000 to their IRAs. Beginning in 2024, the catch-up contribution is indexed to inflation.

Section 109: Increased Catch-Up Limits for Individuals Ages 60 to 63. Beginning in 2025, individuals aged 60 to 63 will be able to make catch-up contributions up to the greater of $10,000 or 50% more than the regular catch-up limit annually to a workplace plan, and that amount will be indexed to inflation.

Section 126: Tax and Penalty Free Rollover of 529 Plan Assets to Roth IRAs. Beginning in 2024, beneficiaries of 529 plan accounts can roll over up to $35,000 over their lifetime to a Roth IRA.  The rollovers are subject to annual Roth IRA contribution limits and the 529 account must have been open for more than 15 years.

Section 302: Penalty for Failing to Take RMDs is Reduced. Beginning in 2023, the penalty for missing an RMD is reduced to 25% from 50% and, if corrected in a timely manner, the penalty is further reduced to 10%.

Section 325: RMDs no Longer Required for Roth Designated Employer Retirement Plans. Beginning in 2024, employer Roth plan RMD treatment will align with RMD treatment of Roth IRAs.

Section 603: Catch-Up Contributions Receive Roth (Rather than Pre-Tax Tax Treatment). Beginning in 2024, for individuals with compensation above $145,000 (indexed to inflation), catch-up contributions made to retirement plans will be Roth contributions (previously savers could choose Roth or pre-tax tax treatment). 

Section 604:  Employer Matching and Non-Elective Contributions Can be Received on a Roth or Pre-Tax Basis. Beginning in 2023, employees can choose to have employer contributions to their retirement accounts treated as Roth or Pre-Tax (previously they were treated as pre-tax). 

While most of these changes represent incremental improvements, Section 126, which enables the rolling over of unused 529 plan assets to a Roth IRA, is new and should help alleviate concerns around overfunding college savings plans.  

We are available to discuss any of the above.  Please let us know if you have questions on how the new legislation may impact your retirement plans.