The SECURE 2.0 Act, signed into law in December 2022, introduces significant changes to retirement planning, aiming to enhance savings opportunities, increase flexibility, and help retirees manage their income more effectively. Below are the key provisions and their impact on retirement planning.
1. Changes to Required Minimum Distributions (RMDs)
✔ RMD Age Increase:
The starting age for RMDs increased from 72 to 73 in 2023 and will rise to 75 in 2033.
This allows retirees to keep funds in tax-advantaged accounts longer, promoting more tax-deferred growth.
✔ Lower RMD Penalties:
The penalty for failing to take an RMD was reduced from 50% to 25%. If corrected quickly, it drops to 10%.
✔ Roth 401(k) RMD Elimination:
Starting 2024, Roth 401(k) accounts are no longer subject to RMDs, aligning them with Roth IRAs.
2. Expanded Roth Contributions and Conversions
✔ Employer Roth Contributions:
Employers can now offer matching and nonelective contributions to Roth 401(k) and 403(b) plans.
These contributions are included in taxable income but grow tax-free.
✔ 529 Plan to Roth IRA Transfers:
Unused 529 college savings funds (up to $35,000) can be rolled into a Roth IRA, helping younger generations with retirement savings.
3. Increased Catch-Up Contributions
✔ Higher Limits for Workers Aged 50+:
The catch-up contribution limit for 401(k), 403(b), and 457(b) plans increases for workers aged 60–63, allowing additional savings.
In 2025, the limit rises to $10,000 (or 150% of the regular catch-up amount).
✔ Mandatory Roth Catch-Up for High Earners:
Starting 2026, those earning over $145,000 per year must make catch-up contributions to a Roth 401(k) instead of a pre-tax account.
4. Enhancements for Small Business and Part-Time Workers
✔ Automatic Enrollment for New 401(k) Plans:
New retirement plans must automatically enroll employees at 3%–10%, increasing participation.
✔ Faster Eligibility for Part-Time Workers:
Employees working at least 500 hours per year for two years can now qualify for a 401(k), instead of three years.
5. Emergency and Student Loan Provisions
✔ Emergency Savings in Retirement Plans:
Starting 2024, employers can offer emergency savings accounts linked to retirement plans, letting employees save $2,500 in after-tax funds.
✔ Student Loan Matching Contributions:
Employers can match student loan payments with contributions to the employee's 401(k), helping workers balance retirement savings and debt repayment.
Final Thoughts
The SECURE 2.0 Act introduces greater flexibility and new savings opportunities for retirees and workers. Whether delaying RMDs, increasing contributions, or leveraging Roth benefits, understanding these changes can optimize retirement planning and reduce tax burdens.