The SECURE 2.0 Act, enacted in December 2022, introduces significant changes to retirement planning, aiming to enhance savings opportunities, expand access to retirement plans, and simplify plan administration. Here’s an overview of key provisions:
Required Minimum Distributions (RMDs)
- Increased RMD Age: The age to begin taking RMDs has increased from 72 to 73 as of January 1, 2023. It will further rise to 75 in 2033.
- Elimination for Roth 401(k)s: Starting in 2024, RMDs are no longer required from Roth 401(k) accounts, aligning them with Roth IRAs.
Catch-Up Contributions
- Enhanced Limits for Ages 60–63: Beginning in 2025, individuals aged 60 to 63 can make catch-up contributions up to $11,250 to their retirement plans, exceeding the standard limit.
- Roth Requirement for High Earners: Starting in 2026, employees earning over $145,000 in the previous year must make catch-up contributions to Roth accounts, using after-tax dollars.
- Inflation Indexing for IRAs: The $1,000 catch-up contribution limit for IRAs will be indexed to inflation starting in 2025 according to Fidelity Investments.
Automatic Enrollment and Plan Access
- Mandatory Auto-Enrollment: From 2025, new 401(k) and 403(b) plans must automatically enroll eligible employees at a minimum 3% contribution rate, increasing annually up to 10%, unless the employee opts out.
- Expanded Access for Part-Time Workers: Employees who work at least 500 hours per year for two consecutive years will be eligible to participate in employer-sponsored retirement plans.
Emergency and Special Withdrawals
- Emergency Expense Withdrawals: Starting in 2024, individuals can withdraw up to $1,000 annually from retirement accounts for emergency expenses without the 10% early withdrawal penalty.
- Domestic Abuse Victims: Victims can withdraw up to $10,000 or 50% of their account balance (whichever is less) without penalty, with the option to repay within three years.
- Disaster Relief: Penalty-free withdrawals up to $22,000 are allowed for individuals affected by federally declared disasters, provided the distribution is made within 180 days of the disaster.
Additional Provisions
- 529 Plan Rollovers: Beginning in 2024, unused funds from 529 education savings plans can be rolled over into a Roth IRA for the beneficiary, subject to certain conditions.
- Student Loan Matching: Employers can match employee student loan payments with contributions to retirement plans, helping employees save while repaying debt.
- Saver’s Match: Starting in 2027, the federal government will provide a matching contribution of up to $1,000 per year to low- and moderate-income individuals contributing to retirement accounts.
- Lost and Found Database: A national online database will be established to help individuals locate lost retirement accounts.
Take the Next Step
These changes aim to make retirement savings more accessible and flexible. For personalized advice, consider contacting us to understand how these provisions may impact your retirement planning.
