10 Things Investors Should Know About Secure Act 2.0


10 Things Investors Should Know About Secure Act 2.0



Secure Act 2.0 has now been put into law as an expanded version of the SECURE Act of 2019. Below are some of the highlights and important provisions we’ve pulled for investors and their retirement plans.

1. RMD Age Delay:
The SECURE 2.0 Act increases the required minimum distribution age to 73 beginning January 1, 2023, and steps up again to age 75 starting on January 1, 2033.

2. Reduction in excise tax:
The SECURE 2.0 Act reduces the penalty for failure to take required minimum distributions from 50% to 25%. If a failure to take a required minimum distribution from an IRA is corrected promptly, the excise tax on the failure is further reduced from 25% to 10%.

3. RMDs and Roth 401(k)s:
Beginning in 2024, the SECURE 2.0 Act also eliminates RMDs for qualified employer Roth plan accounts. Note, if you are required to take an RMD from a Roth 401(k) for 2023, you still must do so.

4. Increase in Qualified Charitable Distributions (QCDs) Limit:
Beginning in 2023, The SECURE 2.0 Act expands the IRA charitable distribution provision to allow for a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrust, or charitable remainder annuity trust. The SECURE 2.0 Act also adjusts for inflation the annual IRA charitable distribution limit of $100,000, beginning in 2023.

5. Emergency Expense Distributions:
Beginning in 2024, under the SECURE 2.0 Act you will be allowed to take an early emergency distribution of up to $1,000 from your retirement account to cover unforeseeable or immediate financial needs. That emergency distribution can be taken once during the year and won’t be subject to the usual additional 10% tax that applies to early distributions. The taxpayer has the option to repay the distribution within 3 years. No further emergency distributions are permissible during the 3-year repayment period unless repayment occurs. Other hardship withdrawals are provided for in the SECURE 2.0 Act including withdrawals from 403(b) plans.

6. Higher Catch-up Contribution Limit:
The SECURE 2.0 Act increases catch-up contribution limits, beginning in 2025, to the greater of $10,000 or 50% more than the regular catch-up amount if you are 60 to 63 years old. After 2025, those amounts will be adjusted for inflation. Beginning in 2024, catch-up contributions to IRAs, currently limited to $1,000 per year, will also be adjusted for inflation.

7. Roth tax treatment on catch-up contributions:
The SECURE 2.0 Act also requires that all catch-up contributions to qualified retirement plans are subject to Roth tax treatment, effective for taxable years beginning in 2024. An exception is provided for employees with compensation of $145,000 or less.

8. Roth employer match:
The SECURE 2.0 Act allows employers to provide matching retirement contributions to Roth accounts. Under the previous law, matching contributions were only made on pre-tax basis.

9. Saver’s Match:
Beginning in 2027, the SECURE 2.0 Act provides a matching credit of up to 50% of a participant’s IRA or retirement plan contributions, up to a limit of $2,000 per individual. This credit replaces the current refundable income tax credit and instead requires the refund from the Treasury Department to be deposited into a participant’s IRA or qualified retirement plan. Participants begin to phase out of this credit at incomes of $20,500 for single taxpayers and $41,000 for married taxpayers.

10. Roth Rollover Option for 529 Plans:
Beginning in 2024, the SECURE 2.0 Act will allow people to make tax and penalty-free rollovers from 529 plans into a Roth IRA. Beneficiaries will be able to roll over a maximum of $35,000 over the course of their lifetime and will also be subject to the annual Roth contribution limits. To qualify for the transfer, the 529 plan must have been open for at least 15 years.




SECURE 2.0 Act Summary


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