Secure Act 2.0 Enacts Changes to Retirement Accounts


The lack of retirement preparedness is a problem as many Americans are expected to outlive their savings.  As a result, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was enacted to revise rules concerning retirement accounts.  Congress recently enhanced these changes by passing the SECURE 2.0 Act, which will help Americans bolster their retirement savings.  

Below is a summary of the major rules that have been changed under the SECURE Act 2.0:

Raising the starting age for RMDs

Automatic Enrollment

  • Starting in 2025, 401(k) and 403(b) plan participants are automatically enrolled in their employer’s plans once they are eligible to participate
  • Employees who don’t wish to participate in the plan can opt out.   

An increase in catch-up contributions

  • Starting in 2023, individuals who are 50 and older will be able to increase their catch-up contributions into retirement plans from $6,500 per year to $7,500 per year. 
  • Starting in 2025, individuals who are ages 60 to 63 will be able to make catch up contributions up to $10,000 per year. 
  • If you earn more than $145,000, catch-up contributions at age 50 or older need to be made to a Roth account in after-tax dollars. 

Roth accounts

  • Starting in 2023, employers may provide employees the option of receiving vested matching contributions to Roth accounts and may create Roth accounts for SIMPLE and SEP retirement plans. 
  • Starting in 2024, RMD requirements for Roth plans are eliminated.

529 Plans. 

  • Starting in 2024, if a 529 plan has been in place for 15 years, individuals will be allowed to roll over funds, up to a lifetime maximum of $35,000, from a 529 plan into a Roth IRA. 

Student loan debt. 

  • Beginning in 2024, an employee’s student loan debt repayment can be treated as the employee’s salary deferral to a 401(k) or 403(b) plan for purposes of matching contributions.  

Emergency savings. 

  • Starting in 2024, employers can establish a Roth emergency savings account that is eligible to accept contributions up to $2,500 annually.  

Penalty-free early withdrawals

  • The law expands the circumstances where penalty-free withdrawals can occur to allow individuals to avoid the current 10% penalty for early distributions.
  • In the case of a financial hardship, up to $1,000 may be withdrawn per year penalty free from a 401(k) or IRA.
  • The employee has to repay the distribution within 3 years.

Saver’s Credit

  • The current “Saver’s Credit” program allows lower income individuals to claim a tax credit for contributions made to workplace savings plan or IRA.
  • Effective in 2027, the credit is being replaced by a “Saver’s Match” that equals up to 50% of the first $2,000 contributed by an individual to a retirement account each year (or up to $1,000).

RMD Excise Tax

  • The law reduces the excise tax for failure to take RMD’s from 50% to 25%.

Incentives to Participate in Retirement Plans

  • Employers are now allowed to provide de minimis financial incentives to encourage plan participation.  De minimis financial incentive is not a defined term so further guidance is needed.

Easing Top-Heavy Plan Rules.

  • Starting in 2023, the top-heavy rules are modified to allow excludable and non-excludable employees to be tested separately, as is permitted for the 401(k) discrimination tests.

Qualified charitable distributions (QCDs). 

  • People may elect as part of their QCD limit a one-time gift up to $50,000 to a charitable remainder unitrust, a charitable remainder annuity trust or a charitable gift annuity.    

Correcting Errors.

  • The law allows for self-correction of many errors and rules.
  • Plan amendments can also be adopted retroactively to increase plan benefits and avoid a violation of the rules.

Annuity Investment Option.

  • The law removes restrictions from using annuities in retirement plans

Limiting IRA Penalties.

  • The law provides that an IRA which loses exempt status due to a prohibited transaction does not result in a loss of exempt status for all IRAs owned by an individual.
  • Using separate accounts for investments is advisable if an individual holds alternative investments in an IRA (which could be a prohibited transaction).

By:    Michael E. George, Esq.