The SECURE 2.0 Act, signed into law in late 2022, contains numerous provisions related to retirement accounts that impact both individuals and employers. While the law aims to encourage more workers to save for retirement, changes affecting 401(k)s, 403(b)s, IRAs and Roth accounts can lead to misunderstandings among some taxpayers and plan sponsors.

Some of SECURE 2.0’s requirements took effect in 2023, while others become effective this year and beyond, according to a Kiplinger report.

Key rule changes cover RMD age rules and penalties, increased 401(k) catch-up contributions, automatic enrollment, emergency withdrawals, 529 Plan Roth rollovers, student loan payment 401(k) matches and more. We review each below.

RMD Changes

SECURE 2.0 increased the required minimum distribution (RMD) age from 72 to 73 as of Jan. 1, 2023. The RMD age will eventually increase to 75 under the new law.

In addition, at the beginning of 2024, SECURE 2.0 eliminated RMDs for qualified employer Roth plan accounts. Prior to the new legislation, Roth 401(k) accounts were subject to RMDs.

401(k) Implications

Several of SECURE 2.0’s provisions impact 401(k) plans and take effect over the next few years. These provisions affect financial incentives to contribute to a retirement plan, hardship withdrawal rules, automatic enrollment, contribution limits and more.

For example, as of January 2023, SECURE 2.0 allows employers to provide financial incentives, such as gift cards, to help increase employee participation in workplace retirement plans.

In addition, beginning in 2024, employees can take an early emergency distribution of up to $1,000 from their retirement accounts to cover unexpected, immediate financial needs. Emergency distributions may be taken once per year and are not subject to the 10% tax that typically applies to early distributions, but they must be paid within a certain timeframe; otherwise, employees will be barred from taking another emergency distribution for three years.

In 2025, SECURE 2.0 will allow employers to automatically enroll eligible participants in 401(k) and 403(b) plans. Employees can later opt out of participation.

Other provisions taking effect in 2025 increase the limits on catch-up contributions to retirement plans to $10,000 or 50% more than the regular catch-up amount for those who are 60, 61, 62, or 63 years old, whichever amount is greater.

Similarly, in 2026, SECURE 2.0 will allow those 50 and older who earned $145,000 or more in the previous year to make catch-up contributions to their employer-sponsored 401(k) accounts on a Roth basis, using after-tax funds. While tax deductions would not apply to catch-up contributions as they would to regular 401(k) contributions, individuals could withdraw the money tax-free upon retirement.

Student Loan Match Requirements

When it comes to matching funds for student loan payments, a SECURE 2.0 provision effective in 2024 allows employers to make a matching contribution to employees’ retirement plan accounts based on their student loan payment amounts.

529 Plan Rollovers

SECURE 2.0 updated 529 plan rules in 2024 so that, in limited circumstances, certain individuals can rollover a 529 plan that they have held for a minimum of 15 years to a Roth IRA, given that annual limits for the rollover are within the annual contribution limit. There is a $35,000 lifetime limit on funds that can be rolled over.

Additional Considerations

The changes don’t stop there—SECURE 2.0 makes additional changes to retirement plans that impact individuals and businesses, including changes to the Saver’s Credit, plans for part-time employees and more.

In 2027, the nonrefundable Saver’s Credit for some IRA and retirement plan contributions will be replaced with a federal matching contribution. This “Saver’s Match” will be 50% of IRA or retirement plan contributions with a limit of $2,000 per person.

Additional provisions will impact part-time worker access to employer-sponsored retirement plans, small business tax credits, contributions to SIMPLE, SEP plans, stock ownership and savings bonds.

Contact our Retirement Planning team for more information or with questions about your own retirement plan.

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