The new SECURE Act 2.0 and What it Means for You

The new SECURE Act 2.0 and What it Means for You

January 24, 2023

The new SECURE Act 2.0 and What it Means for You

The new retirement rules passed in December have been in the news, raising questions for all of us about what is relevant to our particular situation. We’ve immersed ourselves in learning more about these rules, updating our software, and getting ready for our upcoming client financial planning meetings where we’ll share with clients what’s relevant to you - and what you can safely tune out. There’s a lot of information out there - we distill this into usable advice for you.

Following is a summary if you want to read more. 

The original Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in December 2019, brought a wide range of changes to the retirement planning landscape, from the death of the ‘stretch’ IRA to raising the age for Required Minimum Distributions (RMDs) to 72. 

This past December, Congress passed SECURE Act 2.0. One of the major headline changes from the original SECURE Act was raising the age for RMDs from 70 ½ to 72, and SECURE 2.0 pushes this out further to age 73 for individuals born between 1951 and 1959 and age 75 for those born in 1960 or later. In addition, the bill decreases the penalty for missed RMDs.

In addition, SECURE 2.0 includes a significant number of Roth-related changes (both involving Roth IRAs as well as Roth accounts in employer retirement plans). Fortunately there were no provisions that restrict or eliminate existing Roth strategies (e.g., backdoor Roth conversions). These changes include aligning the rules for employer-retirement-plan-based Roth accounts (e.g., Roth 401(k) and Roth 403(b) plans) with those for individual Roth IRAs by eliminating RMDs, creating a Roth-style version of SEP and SIMPLE IRA accounts, allowing employers to make matching contributions and non-elective contributions to the Roth side of the retirement plan instead of just the pre-tax portion (though participants will be subject to income tax on such contributions), and allowing for transfers from 529 plans to Roth IRAs (with significant restrictions).

SECURE 2.0 also includes several measures meant to encourage increased retirement savings. These include making IRA catch-up contributions subject to COLAs beginning in 2024 (so that they will increase with inflation from the current $1,000 limit), while also increasing 401(k) and similar plan catch-up contributions; creating a new “Starter 401(k)” plan (aimed at small businesses that do not currently offer retirement plans; such plans would include default auto-enrollment and contribution limits equal to the IRA contribution limits, among other features); and treating student loan payments as elective deferrals for employer matching purposes in workplace retirement accounts, which would allow student loan borrowers to benefit from an employer match even if they can't afford to contribute to their own retirement plan.

Overall, there are far more provisions in SECURE 2.0 that may have a significant impact for some of our clients than there were in the original version, making it a more challenging bill for all of us to contend with.