SECURE Act 2.0: An Overview

In the final days of 2022, Congress passed a new set of retirement rules designed to make it easier to contribute to retirement plans and access those funds earmarked for retirement. The law is called SECURE 2.0 and is designed to substantially improve retirement savings options—including with 401(k)s and 403(b)s—in the U.S. It's a follow-up to the Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019

The sweeping legislation has dozens of significant provisions, so to help you see what changes may affect you, I broke the major provisions of the new law into four sections.

Understanding The SECURE 2.0 Act

SECURE 2.0 was something both chambers of Congress wanted to see become law; bipartisan support was woven into both versions of the bill. The 103 sponsors of H.R. 2954 consisted of 55 Democrats and 48 Republicans. On the Senate side, six Republicans and five Democrats were co-sponsors of S. 1770.45

The SECURE 2.0 Act attempts to accomplish major three goals: Get people to save more for retirement, improve retirement rules, and lower the employer cost of setting up a retirement plan. Some provisions have already gone into effect (starting Jan. 1, 2023), while others will go into effect in 2024, 2025, and even later. In pursuit of those goals, the new statute is packed with 92 retirement-savings provisions

New Distribution Rules

RMD age will rise to 73 in 2023. By far, one of the most critical changes was increasing the age at which owners of retirement accounts must begin taking required minimum distributions (RMDs). And starting in 2033, RMDs may begin at age 75. If you have already turned 72, you must continue taking distributions. But if you are turning 72 this year and have already scheduled your withdrawal, we may want to revisit your approach¹ or contact a financial advisor.

Reduced penalty. Section 302 reduces the excise tax—the penalty you pay—on failure to take an RMD. Starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25% from 50%. If you fix the mistake promptly, the penalty may drop to 10%.³

Access to funds. SECURE 2.0 expands access to retirement savings in several significant ways: 

1. Plan participants can access up to $1,000 (once a year) from retirement savings for emergency personal or family expenses without paying the 10% early withdrawal penalties (starting Jan. 2, 2024). Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.⁴
2. Section 314 permits survivors of domestic abuse to withdraw the lesser of $10,000 or 50% of their retirement account without penalty.  This is slated to begin starting Jan. 2, 2024.⁴
3. The SECURE 2.0 ACT also lets victims of a natural disaster—if it is a qualified, federally declared disaster—withdraw up to $22,000 from their retirement account without penalty. The withdrawal is treated as gross income over three years without a penalty. This is effective as of the passage of the bill.⁴

New Accumulation Rules

Catch-Up Contributions. Starting January 1, 2025, investors aged 60 through 63 can make catch-up contributions of up to $10,000 annually to workplace retirement plans. The catch-up amount for people aged 50 and older in 2023 is $7,500. However, the law applies certain stipulations to individuals earning more than $145,000 annually.⁴ 

Automatic Enrollment. Beginning in 2025, the Act requires employers to enroll employees into workplace plans automatically. However, employees can choose to opt-out.⁴

Student Loan Matching. In 2024, companies can match employee student loan payments with retirement contributions. The rule change offers workers an extra incentive to save for retirement while paying off student loans.⁴

Revised Roth Rules

529 to a Roth. Starting in 2024, pending certain conditions, employers can roll a 529 education savings plan into a Roth IRA. So if your child gets a scholarship, goes to a less expensive school, or doesn't go to school, the money can get repositioned into a retirement account. However, rollovers are subject to the annual Roth IRA contribution limit. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. Tax-free and penalty-free withdrawals are allowed under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.⁴

SIMPLE and SEP. From 2023 onward, employers can make Roth contributions to Savings Incentive Match Plans for Employees or Simplified Employee Pensions.⁸

Roth 401(k)s and Roth 403(b)s. The new legislation aligns the rules for Roth 401(k)s and Roth 401(b)s with Roth Individual Retirement Account (IRA) rules. From 2024, the legislation no longer requires minimum distributions from Roth Accounts in employer retirement plans.⁴

Additional Highlights

Support for Small Businesses. In 2023, the new law will increase the credit to help with the administrative costs of setting up a retirement plan. The credit increases to 100% from 50% for businesses with less than 50 employees. By boosting the credit, lawmakers hope to remove one of the most significant barriers for small businesses offering a workplace plan.⁴

Qualified Charitable Donations (QCD). From 2023 onward, QCD donations will adjust for inflation. The limit applies on an individual basis, so for a married couple, each person who is 70½ years old and older can make a QCD as long as it remains under the limit.⁴

Remember that just because retirement rules have changed does not mean that adjusting your current strategy is appropriate. Each of your retirement assets plays a specific role in your overall financial strategy, so a change to one may require changing another. If you feel that changes may be required then please contact us to help you review your overall strategy and make sure it is in line with your goals.

Also, retirement rules can change without notice, and there is no guarantee that the treatment of specific rules will remain the same. This article intends to give you a broad overview of SECURE 2.0. It's not intended as a substitute for real-life advice. Please contact us so that we can review your individual situation and outline an approach. We will work with you and your tax and legal professionals to build a custom strategy to help you achieve your goals.