The legislation dubbed the SECURE 2.0 Act passed in late December as part of the Omnibus Appropriations Package. This large bill contains many stipulations that could allow you to save more for retirement, take advantage of additional options in an employer sponsored plan, and keep funds in your retirement plan longer.
The SECURE 2.0 Act, like many pieces of legislation, is vast and can be overwhelming to interpret. These are some of the key elements that could impact your financial plan.
The SECURE 2.0 Act Increases the Required Minimum Distribution [RMD] Age
The SECURE 2.0 Act once again raised the age at which people with non-Roth retirement accounts must begin taking distributions. Prior to the act, the Required Minimum Distribution [RMD] beginning age was 72. Under the new law, this will increase to 73 starting January 1, 2023.
In 2033, the RMD age will be further increased to 75. While this is good news for some investors who are nearing RMD age, it won’t impact retirees currently taking RMDs.
The SECURE 2.0 Act Provides Higher Catch-up Contribution Amounts
Prior to the SECURE 2.0 Act, investors over age 50 could contribute an additional $7,500 to a 401(k) and $3,000 to a SIMPLE IRA as a “catch-up contribution.” The new law increases these catch-up amounts to the greater of $10,000 or 50% more than the regular catch-up amount for people aged 60 through 63. This change will take effect for tax year 2025.
Beginning in 2024, the catch-up amount for both employer plans and IRAs will be indexed for inflation along with regular contribution limits. This change could allow you to contribute more each year as maximum contributions are increased with the cost of living.
The SECURE 2.0 Act Allows Student Loan Payments to be Used for 401(k) Matching
Beginning in 2024, employers can choose to consider student loan payments as 401(k) contributions for the purpose of calculating their employer match. This change was implemented to help investors who must choose between saving for retirement and paying their student loans.
The SECURE 2.0 Act Permits Rollovers from 529s to Roth IRAs
When you save for your child’s education, you may worry about funds that go unused. Beginning in 2024, the new legislation will permit rollovers of 529 funds to Roth IRAs in certain circumstances. These criteria include:
- The 529 must have been open for at least 15 years.
- The rollover amount must be below the lifetime cap of $35,000 from all 529s.
- Rollover amounts must be below the Roth IRA annual contribution limits.
- The beneficiary must have eligible income equal to or above the rollover amount.
This change will reduce some of the anxiety surrounding 529 contributions. If funds are not used for education, your child could get a head start on retirement planning.
The SECURE 2.0 Act Seeks to Simplify Rollovers from 401(k)s to IRAs
Currently, the process for rolling a 401(k) to an IRA varies by company and can be very confusing for employees who leave their job. The SECURE 2.0 Act attempts to standardize this process by providing sample forms. These forms would be available no later than January 1, 2025, and they are designed to make it easier to move funds from an old 401(k) to an IRA.
The SECURE 2.0 Act Eliminates RMDs from Roth 401(k)s
Under current law, Roth IRAs are immune from RMDs, but Roth 401(k)s are not. The SECURE 2.0 Act will eliminate this discrepancy. Beginning in 2025, Roth 401(k)s will not be subject to RMDs. This adds another important consideration for those deciding between Roth and Traditional 401(k) contributions.
The SECURE 2.0 Act Adds Employer Matching Roth Option
Prior to the SECURE 2.0 Act, all employer matching contributions in 401(k) plans were required to be designated as pre-tax – also known as Traditional. The new act allows matching to be designated as Roth or Traditional – with the choice being left to the employee. This provision will activate when the bill goes into effect.
The SECURE 2.0 Act Introduces Roth for SIMPLE and SEP IRAs
Currently, employees can designate their personal retirement contributions as Roth in many types of employer sponsored retirement plans, but not a SIMPLE IRA. The SECURE 2.0 Act will allow employee SIMPLE IRA contributions to be designated as Roth.
SEP IRAs are a type of employer sponsored plan that only accepts employer contributions, rather than a mix of employee and employer contributions. Beginning in 2023, those with SEP IRAs can designate their employer contributions as Roth if they choose.
These are just a few of the provisions of the SECURE 2.0 Act. To discuss the details and how they could impact your retirement plan, contact an experienced financial advisor.
Discuss Your Retirement Plan with an Advisor at Meld Financial
If you have questions about how the SECURE 2.0 Act could impact your retirement plan, contact an experienced advisor at Meld Financial. We have spent more than 30 years helping clients reach their retirement goals and we have the experience to answer your most pressing questions.
At Meld Financial, our team of tax, legal, and investment professionals can build your Financial Fingerprint™ – a proprietary wealth management program that’s quick to assemble, easy to understand, and simple to modify as your circumstances change. This plan adjusts to changing legislation, economic conditions, and factors within your own life. With Financial Fingerprint™, you can feel confident that you are on the right path to retirement success.
Contact us today to get started.