The SECURE 2.0 Act was included in the omnibus spending bill recently signed by President Biden. Here is a brief overview of several of the provisions of the Act that will impact those in or nearing retirement.
Required Minimum Distributions (RMDs) are Pushed Back
- If you turned 72 in 2022 or earlier, you should continue taking RMDs per your previous schedule.
- If you turn 72 in 2023, SECURE 2.0 pushes back the age at which RMDs must start by 1 year, to age 73.
- Beginning in 2033, RMDs will be pushed back even further, to age 75.
- The penalty for failing to take an IRA RMD is reduced to 25% of the RMD amount from 50%, and to 10% if corrected in a timely manner.
“Catch-Up” Contributions to Retirement Accounts are Increased
- Currently, the catch-up amount for those age 50 and older in 2023 is $7,500 for a workplace plan such as a 401(k). Starting January 1st, 2025, individuals ages 60 through 63 will be able to make catch-up contributions up to $10,000 annually to a workplace plan, indexed for inflation.
- IRAs currently have a $1,000 catch-up limit for those 50 or older. Starting in 2024, that limit will be indexed to inflation.
Roth Related Changes
- Beginning in 2024, RMDs for Roth accounts in qualified employer plans are eliminated.
- SECURE 2.0 authorizes creation of SIMPLE and SEP Roth IRA accounts. Previously, these accounts could only hold pre-tax funds.
- Employers will be allowed to make vested matching contributions to employees’ designated Roth accounts.
- SECURE 2.0 allows you to roll the funds in a 529 account over to a Roth IRA after 15 years. The Roth IRA has to be for the beneficiary, and any rollovers will be subject to annual and lifetime contribution limits. Contributions to the 529 plan within the last 5 years (and related earnings) are ineligible to be moved to the Roth.
SECURE 2.0 is a very complicated package of legislation, with numerous other rule changes. As always, please consult your financial and tax advisors to see how provisions may affect your situation.
David is the Co-Founder and Chief Investment Officer of Rappaport Reiches Capital Management. He acts as personal CFO to entrepreneurs and corporate executives, providing organization and clarity in their finances. Please connect with David below. He loves to talk about investing, financial planning, and Aspiritech, a non-profit hiring individuals on the autism spectrum.