By Robin Barrasso, Senior Associate
The Original SECURE Act (Setting Every Community Up for Retirement Enhancement) was passed back in 2019 to aid taxpayers with retirement savings & planning. The SECURE Act 2.0 was updated in late 2022, adding adjustments to further help individuals with retirement savings. A few of these changes began in 2023, while others are stretched out over several years. Here are some key highlights and changes that take place next year, beginning in 2024.
Updates to the RMD Age:
- Required Minimum Distributions (RMDs) are minimum amounts that retirement plan account owners must withdraw annually starting with the year they reach the designated age, based on your birthyear.
- The SECURE Act 2.0 made a notable change to the date in which taxpayers must begin taking their RMD’s (required minimum distributions) from their accounts.
- The age increased from 72 to 73 beginning January 1, 2023, and rises to age 75 starting in 2033. If you turned 72 in 2022 or earlier, you will need to continue taking your RMDs as scheduled.
- What if I turned 72 during 2023? If you are turning 72 in 2023, the required beginning date for your first RMD is April 1, 2025. If you have already scheduled your RMD, you can update your withdrawal plan to take advantage of the extra RMD-free year.
Decrease in Penalties related to RMD’s:
- Beginning in 2023, the penalty for failing to timely take an RMD decreased to 25% of the RMD amount not taken. The penalty prior to 2023 was previously 50% of the amount of the RMD not taken.
- Post-2023 penalties can be further reduced to 10% for IRA owners, if the account owner subsequently withdraws the RMD amount previously not taken timely and submits an amended tax return.
Changes specific to Roth Accounts:
- One of the biggest changes from Secure 2.0 that takes place beginning in 2024, is the elimination of RMD’s for Roth 401(k) and 403(b) plans. Previously, Roth IRAs did not require withdrawals, but Roth 401(k) and 403(b) plans did require withdrawals. Beginning in 2024, RMDs are no longer required from designated Roth accounts.
- Roth Catch-Up Contributions:
- Under Secure 2.0, if you are at least 50 years old and earned $145,000 or more, your catch-up contributions were going to be required to be made on a Roth basis (using after tax money).
- This change was set to take effect on January 1, 2024. However, due to concerns over the implementation of these plan changes, the IRS announced a two-year delay in implementation.
- Roth catch up contributions for high earners has been postponed until 2026.
Rollover options for 529 College Savings Plans:
- Starting in 2024, 529 Plan account owners will be able to roll over unused funds to Roth IRA accounts.
- This change is welcomed by many account holders who were discouraged from funding 529 plans due to beneficiaries who may decide not to pursue higher education or who may not have a need due to scholarships.
- The SECURE Act 2.0 allows monies from an established 529 account to be rolled over from a 529 account into a Roth IRA, with the following stipulations:
- The 529 account must be held for a minimum of 15 years.
- The rollover amount must have been held in the 529 account for a minimum of 5 years.
- There is a $35,000 Lifetime Rollover Limit for each 529 account beneficiary.
- The beneficiary of the 529 plan must also be the owner of the Roth IRA.
- Rollovers are subject to annual IRA contribution limits (cannot rollover the entire $35,000 at once)
- However, the beneficiary is not subject to the income limitations to contribute to a Roth IRA. Meaning, if the beneficiary’s income is over the limit normally in place to contribute to a Roth IRA, the beneficiary can still make a rollover from the 529 plan to the Roth IRA.
Employer Match for Student Loan Payments:
- Student loan payment obligations have hindered employees’ abilities to contribute to defined contribution retirement plans and therefore, they miss out on the employer matching contributions. The Secure 2.0 Act aimed to help this ongoing issue.
- Starting in 2024, employers are allowed to make a matching contribution to your retirement plan based on employees’ qualified student loan payment amounts. Employers can match contributions to elective deferrals and student loan payments but not more than the total matching contributions available in the plan. Employers will be allowed to offer this match even if the employee is not contributing to the plan.
- These changes for 2024 can help people stay on track for retirement savings, despite having high student loan debt.
These are just some of the highlights of the Secure 2.0 Act set to take place next year. For a full breakdown of the Secure 2.0 Act please reference our earlier blog.