SECURE Act 2.0

On December 29, 2022, the SECURE Act 2.0 was signed into law by Congress. Investors, especially those in or near retirement, need to pay attention to several items that go into effect between 2023-2025 due to this new legislation. Let’s briefly recap what the original SECURE Act included and how the SECURE Act 2.0 might impact you!

What Did The Original SECURE Act Include?

As you may recall, the original SECURE Act (2019) made several changes that impacted retirees:

• Facilitated small business owners creating “safe harbor” retirement plans.
• Delayed the age that RMDs are required from 70 ½ to 72.
• Opened investment opportunities in 401(k)s (such as annuities). 
• Made it necessary for non-spouse IRA inheritors to take distributions that empty the inherited account within ten years.
• Opened up employer retirement savings benefits to part-time employees.
• Gave a $500 tax credit to businesses that set up automatic enrollment in their company 401(k) for employees.
• Allowed 529 Plan funds to pay up to $10,000 toward student loans (lifetime payment cap). 
• Allowed a penalty-free withdrawal of up to $5,000 for plan participants who are having or adopting a child to offset costs.

The goal of the SECURE Act was initially to encourage retirement savings and make it easier for businesses to support their employees with these types of benefits. 

What is The SECURE Act 2.0?

SECURE Act 2.0 also aims to create more retirement savings opportunities for US workers. The Act is broken into six sections that cover everything from retirement savings accounts to savings preservation. 

Retirement savings (for retirees).

• In 2023, the age where RMDs begin changed from 72 to 73. In 2033, this age will change to 75. 
• In 2023, the penalty for failing to take an RMD is decreasing to 25% of the RMD not taken (down from 50%).
• Roth accounts in an employer’s plan are exempt from RMDs beginning in 2024. 
• In-plan annuity payments that go over a participant’s RMD can be put toward their RMD. 
• Starting in 2023, investors aged 70 ½ can make a QCD distribution of up to $50,000 as a one-time gift to a unitrust, a charitable remainder trust, or a charitable gift annuity.

For employees (not yet retired). 

• Higher catch-up contributions are allowed for individuals from 60-63 years old. Catch-up contribution limits for this age group will increase to $10,000/year in January of 2025, with some exceptions. If you earn over $145,000 per year, catch up contributions made after age 50 must be made to a Roth account. 
• Employers can provide contribution matching to Roth accounts.

These are a few critical changes implemented by the SECURE Act 2.0. If you have additional questions, you can get the complete overview of the SECURE Act 2.0 on the Senate’s website here. If you have any questions regarding changes from the SECURE Act 2.0, don’t hesitate to reach out! We’re here to help.

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.