Congress recently passed the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act. Whether you’re working or already retired, you are likely affected by some big changes to retirement accounts.
Further delay of RMD beginning age
Required minimum distributions (RMDs) now begin at age 73 and will move to age 75 beginning in 2025. That means your savings can grow tax-deferred for longer.1
Increased catch-up contributions
Normally people age 50 or older can make catch-up contributions in addition to maximum contribution limits. That amount (currently $1,000 for IRAs) will now be indexed for inflation. For employer plans (where the catch-up is currently $7,500), the catch-up for those between the ages of 60 and 63 will be increased to at least $10,000 (or 1.5 times the annual catch-up, if higher). However, high earners (individuals making more than $145k in the previous tax year) will be required to place their catch-up contributions into a Roth account.1
Matching contributions eligible for Roth
Employees may have the option of directing employer matching contributions into a Roth account (whereas matching used to be on a pre-tax basis only). You’ll need to pay taxes on the match as if it’s earned income but it will allow you to put even more into an account that grows tax-free.3
Roth 401k accounts not subject to RMDs
Beginning in 2024, this means workers don’t need to rollover their Roth 401k into a Roth IRA just to avoid RMDs.1
New Roth account types
SEP IRAs and SIMPLE IRAs are now able to accept Roth contributions.3
Decreased penalties for missed RMDs
The penalty drops from 50% to 25% and possibly even 10% if the amount is eventually taken out in a timely manner and corrected on a tax return.1
QCDs are more flexible
Qualified charitable distributions (QCDs) are donations made to certain charities directly from your IRA (up to $100k per year and now indexed for inflation). The amount counts toward your RMD. The new law adds onto this the ability to make a one-time gift (for those age 70 1/2 and older) of $50k (also indexed for inflation) to a charitable remainder unitrust, charitable remainder annuity trust, or charitable gift annuity.1
529 rollovers to Roth IRAs
Funds in a 529 plan can now be rolled over to the beneficiary’s Roth IRA after 15 years. This provides another avenue to use funds no longer needed for school expenses. The rollover counts toward the annual Roth IRA contribution limit so the rollover might have to take place over multiple years. There’s also a $35,000 lifetime limit to the rollovers.1
Automatic enrollment, escalation, and plan portability
Beginning in 2025, new employer plans must auto-enroll employees with at least a 3% salary deferral (no higher than 10%) and escalate each year by 1% per year of service up to an amount between 10% and 15%.2 Employees can unenroll themselves, but the idea is more people will likely save for retirement if that’s the default. Automatic portability services may also be provided where old plans are automatically rolled over into new ones.1 This helps consolidate accounts and allows employees to continue saving for retirement rather than cashing out previous plans and paying penalties when they change jobs.
Matching student loan payments
Employers can elect to match an employee’s student loan payments by adding to their retirement account. This allows workers to start saving for retirement while paying off student debt.3
The hope is that these changes can help encourage more people to save for retirement by making retirement saving more accessible and properly incentivized. These are just some of the many changes that will be implemented over the next few years. Please consult your tax professional for more specific advice.
Sources and Disclosures
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