Secure 2.0 Act

The Secure 2.0 Act was signed in to law on December 29, 2022, by Joe Biden. This Act increases contribution limits, raises the RMD age, enacts changes to employer sponsored plans, and more. In this article, we will go over some of the changes brought about by the Secure 2.0 Act.

Increased Catch-Up Contributions

Starting January 1, 2023, individuals aged 60-63 can make additional catch up contributions of up to $10,000 to 401k and 403b plans. Those between 50 and 60 have an $7,500 additional catch-up contribution limit. However, the $10,000 catch-up contribution is optional for employers to implement.

Automatic Enrollment

Starting in 2023 businesses with new 401k and 403b plans must automatically enroll employees at a 3% contribution rate. This is to help people to save for retirement due to simply forgetting to enroll in the plan during onboarding.

Account Portability

Under the Secure 2.0 Act employees can now rollover retirement accounts from previous jobs to the new job’s account. The goal of this change is to eliminate having a trail of 401k plans with every new job you take.

Changes to Required Minimum Distributions

Starting January 1, 2023, the Required Minimum Distribution age is increased from 72 to 73. It also decreases the penalty for not taking your RMD from 50% to 25%. The penalty is further reduced to 10% if the account owner withdraws the RMD amount and submits a corrected tax return in a timely manner.

Employer Matching for Roth IRAs

Before the Secure 2.0 Act employers could only provide matching on a pretax basis. Now employers can provide vested matching contributions to Roth accounts. These allow employees to invest after tax earnings that can grow tax free.

Qualified Charitable Distributions

Starting in 2023, individuals 70 ½ and older can elect to have up to a $50,000 one-time distribution gifted to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. These funds must come directly from an IRA. The contributed amount can count towards the RMD. However, it is important to note that not all charities are eligible.

Utilizing Secure 2.0 Act Changes

The changes enacted by the Secure 2.0 Act can help you optimize your retirement savings. If you are not sure how they can work for you, meet with a Certified Financial Planner to help you make an airtight retirement plan.

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