The SECURE 2.0 Act was passed by Congress as part of a year-end spending bill. This retirement plan legislation is an expanded version of the SECURE Act of 2019, which aims to improve retirement laws on savings accounts. The bill was signed into law by President Biden on December 29, 2022. Here’s what you need to know about the sweeping changes for retirement benefit plans.
A financial advisor can help you plan for RMDs and limit your tax burden when you start taking them. Find a trusted fiduciary advisor today.
What’s in the SECURE 2.0 Act of 2022?
The SECURE 2.0 Act is intended as an upgrade to the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. It was passed by Congress on December 23 as part of the Consolidated Appropriations Act of 2023. President Biden signed the legislation into law just six days later.
The expanded legislation makes significant changes to qualified retirement plans. Among these, the SECURE 2.0 Act increases the age from 72 to 73 in 2023 (and 75 in 2033) for required minimum distributions (RMDs). In 2022, RMDs are the minimum amount of cash a retirement plan account holder is required to withdraw annually before they reach the age of 72.
The SECURE 2.0 Act also has provisions to improve retirement savings accounts in the U.S., which eliminate RMDs for Roth accounts in 401(k)s and 403(b)s, among other provisions beginning in 2024.
The House passed its version of the SECURE 2.0 Act in late March 2022 as the Enhancing American Retirement Now (EARN) Act.
The EARN Act aimed to help part-time workers participate in 401(k) plans as well as saver’s credit for low and middle-income workers. It also offered easier access to cash with penalty-free withdrawals that are needed during urgent circumstances. These included domestic violence, terminal illness and widespread events like natural disasters.
“The EARN Act expands opportunities for Americans to increase their retirement savings and improves workers’ long-term financial well-being,” said Senate Finance Committee member and Republican Senator Mike Crapo (R-Idaho). “Every member of the Finance Committee had a hand in drafting this legislation, and the broad range of ideas incorporated into the final bill is a testament to the power of bipartisanship.”
Notable Changes in the SECURE 2.0 Act
Here are seven notable changes that will be enacted to law by the SECURE 2.0 Act:
- Age for RMDs goes up to 73 for those who turn 72 in 2023 and 75 in 2033
- Most of the new 401(k)s and 403(b)s established after SECURE 2.0 Act becomes law will be required to enroll employees automatically and escalate contributions automatically after December 31, 2024
- Low-income retirement savers after December 31, 2026 could qualify for a 50% tax credit up to $2,000 that has to be deposited into an individual’s retirement plan or an IRA
- RMDs are eliminated from Roth accounts in 401(k)s and 403(b)s for tax years after December 31, 2023
- Catch-up contribution limits will go up for those age 60 and 63 after December 31, 2024 to the greater of two: either $10,000 or 150% of the regular catch-up amount for those 50 and older.
- Early withdrawal penalties will be eliminated for hardship distributions made by terminally ill employees and those living in declared disaster areas (up to $22,000)
- The Department of Labor will create an online database within two years after the SECURE 2.0 Act becomes law for employees (and employers) to find orphaned retirement accounts and match them to current plans.
Bottom Line
President Biden signed the SECURE 2.0 Act into law on December 29, 2022. This legislation makes notable changes to qualified retirement plans. These will increase the age for RMDs, make enrollment and escalation automatic for most new 401(k)s and 403(b)s, and increase tax credits for low-income retirement savers, among other changes.
Retirement Planning Tips
- Creating a well-rounded retirement picture starts with figuring out how much you need to save. Using a retirement savings calculator can help you estimate how much you need to set aside monthly or annually to reach your target retirement goals. Including tax-advantaged retirement plans, such as a 401(k) or IRA, your savings strategy can help you make the most of every dollar you contribute. It’s also important to check your investment fees regularly, as fees can eat into your earnings.
- Consider talking to your financial advisor about what SECURE 2.0 Act could mean for your savings strategy. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with vetted professional advisors that serve your area. It takes just minutes to get your personalized recommendations online. If you’re ready, get started now.
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