The SECURE Act 2.0 was signed into law on December 29, 2022 and aims to enhance retirement savings in the United States. It builds upon the original SECURE Act, which was passed in 2019, and seeks to address some of the shortcomings of the earlier legislation.
Here are some of the key provisions of the SECURE Act 2.0 and how it could impact investors:
New Distribution Rules
Investors with retirement accounts, such as IRAs and 401(k)s, will need to take their required minimum distribution (RMD) starting at age 73, and at age 75 starting in 2033. If you have already turned age 72, you must continue taking distributions. By increasing the age requirement, this could give investors more time to accumulate wealth in their retirement accounts and delay taxes on withdrawals. However, it could also mean that investors who were planning to take distributions at age 72 may need to adjust their retirement income strategy.
Reduced penalty
Starting in 2023, if you miss an RMD, the penalty tax drops from 50% to 25%.
New Accumulation Rules
Starting in 2025, investors aged 60 through 63 can make annual catch-up contributions of up to $10,000 to workplace retirement plans.
Revised Roth IRA Rules
Starting in 2024, individuals can rollover unused funds in a child’s 529 education savings plan into a Roth IRA; however, there are several conditions that must be met. To name a few, rollovers are still subject to the annual Roth IRA contribution limit, the 529 must have been in existence for at least 15 years, and the maximum amount that can be rolled over is $35,000 per beneficiary.
Starting in 2023, employers can make Roth IRA contributions to SIMPLE and SEP IRAs.
Lastly, the new legislation aligns the rules for Roth 401(k) and Roth 403(b) plans with Roth IRA rules. Starting in 2024, the legislation no longer requires minimum distributions from Roth IRA accounts in employer retirement plans.
Additional Highlights
- The Saver's Credit provides a tax credit to low- and moderate-income individuals who contribute to a retirement plan. This could encourage more people to save for retirement, help boost retirement savings, and potentially improve long-term financial security for many individuals.
- Additional tax incentives will be provided for small businesses to offer retirement plans to their employees.
- Long-term, part-time workers are allowed to participate in 401(k) plans, which could help more people save for retirement and potentially increase overall retirement savings.
The SECURE Act 2.0 could have broader economic impacts as well. By encouraging more retirement savings, the legislation could help reduce the strain on social welfare programs and reduce the risk of poverty among retirees. It could also boost small businesses by providing tax incentives for offering retirement plans, which could help attract and retain talent.
Please click here to learn more about how the provisions of the SECURE Act 2.0 could impact you.