Contributed by: Kali Hassinger, CFP®, CSRIC™
For the last several months, we have been monitoring the possibility of a "Secure Act 2.0" being passed into legislation. The initial SECURE Act (which stands for Setting Every Community Up for Retirement) was passed in late 2019, and had far-reaching effects on Required Minimum Distributions, inherited retirement accounts, and expanded the ability to contribute to IRAs.
Throughout the year, there have been talks about additional legislation through the Secure Act 2.0 to further expand access to retirement savings for individuals, small-business employees, employees with student loans, and part-time workers.
On Thursday, December 22nd, Secure Act 2.0 was pushed through as part of the $1.7 billion 2023 omnibus appropriations bill (which is a brief 4,000+ page read). Some of the key provisions contained in the bill include:
Higher retirement plan catch-up limits beginning at age 60 and increasing each year of age. This will likely go into effect in 2024.
Increasing the Required Minimum Distribution age to 73 in 2023, and eventually it will be increased to age 75 over several years.
Requiring employers to auto-enroll new employees into their current 401(k) or 403(b) plans with an automatic contribution increase each year.
The tax penalty for missing a Required Minimum Distribution will be reduced from 50% to 25%, with the future ability to reduce the penalty to 10% if the miss is corrected in a timely manner.
The establishment of a “starter” 401(k) plan or 403(b) plan for employers that do not currently offer retirement plans.
A 100% tax credit for employer matches in newly established employer retirement plans.
Allowing student loan repayments to be treated as retirement plan contributions for company match purposes.
Establishment of a retirement savings Lost and Found for those who have lost track of old retirement plans.
A pension linked emergency savings provision. These accounts must be held in cash and contributions (up to a maximum balance of $2,500) must be treated as retirement plan contributions for matching purposes. Distributions would be tax free.
Emergency withdrawals up to $1,000 every 3 years, or until the previous withdrawal has been paid back, will be allowed from retirement plans.
Part-time employees with 2 years of 500+ hours will qualify for retirement plan participation
The ability to transfer some 529 funds to a Roth IRA in the 529 beneficiary’s name. The amount that can be transferred is subject to Roth IRA annual contribution limits with the lifetime transfer amount of $35,000. Roth IRA contribution income limits do not apply. The 529 needs to have been established for 15 years.
Many of these updates will slowly go into effect over time, and we are continuing to actively monitor and research Secure Act 2.0 as details continue to emerge. We will provide additional information as it is available, but if you have any questions about how this could affect you, please contact your Financial Planner. We are always happy to help!
Kali Hassinger, CFP®, CSRIC™ is a Financial Planning Manager and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.
The information contained in this letter does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Kali Hassinger, CFP®, CSRIC™, and not necessarily those of Raymond James. Expression of opinion are as of this date and are subject to change without notice. There is no guarantee that these statement, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Individual investor’s results will vary. Past performance does not guarantee future results. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.