The SECURE 2.0 Act Becomes Law: What It Means for You

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Concord Wealth Partners January 3rd, 2023

Now signed into law, the “SECURE 2.0 Act” legislation brings many enhanced opportunities for retirement savings, making it easier for Americans to contribute to retirement plans while expanding incentives for small businesses to offer plans to their employees.

Below we have highlighted a few changes, some becoming available now and others in future years.

Savings Opportunities

  • Increased Catch-up Contribution Limits for Ages 60-63
    Currently, you can make catch-up contributions to retirement accounts at age 50 and later. Starting in 2025, this bill enhances these contributions from ages 60-63 by increasing the limits to $10,000 ($5,000 for SIMPLE Plans) or 50% more than the regular catch-up amount. These increased amounts will be indexed for inflation.
  • Employer Contributions to SIMPLE IRA Plans
    Currently, employers can choose to apply either a 2% contribution for all employees covered in the plan each year or a 3% match. Starting in 2024, the new bill allows employers to make an additional contribution for each employee uniformly so that the additional contribution does not exceed the lesser of 10% of compensation or $5,000.
  • Student Loan Repayment Plan Match
    Starting in 2024, employers will be able to help employees save for retirement while paying off their student loans. An employer can make a matching contribution on behalf of the employee in a 401(k), 403(b), 457(b), or SIMPLE IRA for the “qualified student loan repayments.” The employee must certify to the employer the contribution was for qualified higher education expenses.

Required Minimum Distribution Changes

  • RMDs Age Increased to 73 and then 75
    Starting January 1, 2023, the required beginning date (RBD) for participants of qualified retirement plans and IRAs to begin taking required minimum distributions (RMDs) will move from age 72 to age 73. Additionally, on January 1, 2033, the age is set to increase to 75.
  • Reduction of missed RMD Penalty Tax
    The penalty for missing an RMD will be reduced from 50% tax to 25% tax. Additionally, if the RMD is corrected in a timely fashion, the penalty would be reduced to 10% tax.

Expanded Roth Opportunities

  • 529 to Roth Accounts
    Penalty-free rollover from a 529 account to a Roth IRA in the beneficiary’s name will be available under certain conditions. Currently, money that’s distributed for non-education expenses can be subject to penalties and taxes. Under the new provision, beneficiaries would be able to do a rollover of up to $35,000 aggregate in
    life from a 529 to a Roth IRA, subject to the annual contribution limits. Effective with respect to distributions after December 31, 2023.
  • Removal of Pre-Death RMDs from Roth Accounts
    Pre-death RMDs for qualified Roth accounts, such as Roth 401(k) or Roth 403(b), will no longer be required and will now be treated the same as Roth IRAs from an RMD perspective.
  • SIMPLE and SEP Roth IRAs
    Previously, SIMPLE IRAs and SEP IRAs did not allow for Roth contributions; however, this bill now allows for Roth employee contributions starting in 2023. The SIMPLE and SEP plans would have to decide to offer this feature, as it is not automatic.

As anticipated, SECURE 2.0 brings a raft of significant changes—and opportunities—
for business owners, employees, and current and future retirees.

Reach out to your advisor as soon as possible to discuss how this bill could impact your plan directly.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investment advisory services are offered through Concord Wealth Partners, an SEC Registered Investment Advisor.

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