What You Should Know About the SECURE Act 2.0

With the signing of the SECURE Act 2.0 into law, both employees and employers can take advantage of more than 90 new provisions aimed at creating opportunities to create or modify workplace retirement plans and strategies. So what do you need to know about these new provisions? Continue reading for a helpful overview of the important information you should know about the SECURE Act 2.0, or click the button below to read the comprehensive guide.

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Key Points

• Catch-up contribution changes
• Enhancement of tax credits for small business
• Changes to required minimum distributions (RMDs)
• Student loan payment matching
• Expansion of auto-enrollment
• Emergency plan modifications through a 401(k) plan
• Distribution of excess 529 assets to Roth IRAs
• Employer contributions to be offered to employees on a Roth basis
• SIMPLE and SEP contributions to be made on a Roth basis
• Self-correction and IRA violations without submission to the IRS
• Benefits for part-time and low to middle-income workers

Catch-up contribution increase and changes for earners over $145,000
Catch-up contributions allow you to put more money in your retirement savings accounts than the amount usually permitted for the year. There are two significant changes to the catch-up contributions. First, effective in 2024, all catch-up contributions for individuals earning more than $145,000 per year (indexed) must be made on a Roth, or after tax basis. This does not apply to SIMPLE plans.

Second, beginning Jan. 1, 2025, individuals ages 60-63 will be allowed to make catch-up contributions to their workplace plan of up to $10,000 or 150% of the standard catch-up contribution amount for 2024 or whichever is greater. The $10,000 amount will be indexed to inflation each year starting in 2026. For SIMPLE Plans, the contribution limit is $5,000 or 150 percent of the regular SIMPLE catch-up ($5,520 in 2023), whichever is greater.ⁱ

Currently, catch-up contributions to a 401(k) account for anyone 50 or older are $6,500 (2022), scheduled to rise to $7,500 in 2023. These amounts are in addition to regular 401(k) contribution limits: $20,500 (2022) and $22,500.ⁱⁱ

Changes to the required distribution age
Currently, required minimum distributions amounts – that must be withdrawn annually according to the law – begin at age 72. However, this age is expected to rise to 73 in 2023 and then to age 75 in 2033.

Along with a change in age, the penalty for failing to take an RMD will decrease to 25 percent of the RMD amount, from 50 percent currently, and 10 percent if corrected in a timely fashion, beginning next year.ⁱⁱⁱ

Also, Roth accounts in 401(k) plans (different from Roth IRAs, which come with no RMDs during the owner’s lifetime) and other employer-sponsored plans will be exempt from RMDs starting in 2024.

Distribution of excess 529 assets to Roth IRAs
Beginning in 2024, excess assets in a 529-qualified tuition program will be eligible for a tax-free distribution to a Roth IRA. Distribution is subject to the lesser of (a) the regular Roth IRA limits (without the income limits) or (b) the aggregate amount contributed to the 529 accounts over the previous five years (plus earnings).

Many of the provisions within this legislation continue to be updated and modified. We expect more information to become available as soon as mid-year regarding changes to inherited IRA accounts. As soon as that information is available we will follow up with how these changes could impact your retirement strategy.

Please contact us if you have any questions about the Secure Act 2.0.

Important Information

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax free, as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy

This article was prepared by LPL Marketing Solutions

Footnotes:

[i] Secure 2.0 Top 10 provisions (brandfolder.io)

[ii] 401(k) limit increases to $22,500 for 2023, IRA limit rises to $6,500 | Internal Revenue Service (irs.gov)

[iii] 5 RMD Changes Looming With Passage Of SECURE 2.0 Act (forbes.com) 

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