First, Congress approved the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019, affecting qualified retirement plans and IRAs. Now the president has signed into law “SECURE Act 2.0” as part of a spending measure. Following are several key provisions in this new legislation.

  • RMD age threshold: Generally, participants in qualified plans and IRAs must take required minimum distributions (RMDs) after reaching age 72 (raised from 70½ by the first SECURE Act). The new law raises the threshold to age 73 beginning in 2023. In 2033, it will increase to age 75.
  • RMD penalty: Previously, the penalty for failing to take an RMD was equal to 50% of the required amount. The new law drops it to 25%, effective for tax years beginning after the date of enactment. The penalty is further reduced to 10% if the error is corrected in a timely fashion.
  • Emergency distributions: Beginning in 2024, you can take emergency distributions from a retirement account to cover unforeseen or immediate financial needs without incurring the usual 10% early withdrawal penalty. The amount is limited to $1,000 a year. If you do not repay the distribution within a certain time, you cannot take another emergency distribution for three years.
  • Catch-up contributions: Currently, you can make catch-up contributions to 401(k) and certain other qualified plans, subject to an annual limit, if you are age 50 or older. Beginning in 2025, the new law increases the limit from $7,500 to the greater of $10,000 or 50% more than the regular catch-up amount for someone between age 60 and 63. After 2025, these amounts will be indexed for inflation. (Other changes apply to catch-up contributions for IRAs and SIMPLE plans.)
  • Roth catch-up contributions: Beginning in 2024, catch-up contributions to employer retirement plans must be made to Roth-type accounts for certain employees. These contributions are made with post-tax dollars that may be withdrawn tax-free in retirement. The new requirement applies to employees with compensation above $145,000 (indeed for inflation). Also, RMDs will not be required for these employer plan accounts, beginning in 2024.
  • Automatic enrollment: To encourage greater participation in 401(k) and 403(b) plans, a business or nonprofit entity will be required to provide automatic enrollment to eligible employees. Employees could then choose to opt out. This provision will apply to new plans adopted after 2024 with certain limited exceptions.
  • Retirement saver’s match: Beginning in 2027,SECURE Act 2.0 replaces the retirement saver’s credit with a “matching” contribution by the government to your qualified plan or IRA. The match will equal 50% of the amount contributed to your retirement account, up to $2,000 per individual. However, certain income limits and a phase-out rule will apply.
  • Student loan match: Under the new law, your employer may elect to make a matching contribution to your retirement plan account based on your student loan obligations, beginning in 2024. This creates an incentive for student loan debtors to save for retirement.
  • Qualified charitable distributions: An individual age 70½ or older can transfer up to $100,000 directly from an IRA to a charity tax-free. Beginning in 2023, you may elect as part of this qualified charitable distribution (QCD) a one-time gift up to $50,000 to a charitable remainder trust or charitable gift annuity. This amount will be adjusted for inflation.
  • Section 529 rollovers: Funds remaining in a Section 529 account for higher education expenses may be rolled over into a Roth IRA, up to a lifetime cap of $35,000, without any tax or penalty. However, the 529 account must have been open for at least 15 years. This provision takes effect in 2024.
  • Plan start-up credit: Under the first SECURE Act, a business with 100 or fewer employees could claim a tax credit for three years for 50% of the cost of starting up a qualified retirement plan, up to $5,000 (increased from $500). Beginning in 2023, employers with 50 or fewer employees can qualify for a credit equal to 100% of the cost, up to $1,000, subject to phase-outs.
  • Retirement database: Finally, the new law creates a veritable “lost and found” database where you can search for retirement plan assets you have lost track of. The government has two years from the date of enactment to complete this task.

If you have any questions, please feel free to reach out to your JMF professional tax advisor.