Congress recently passed SECURE 2.0 Act, which includes over 90 new provisions for retirement plans.
The goal is to help improve Americans’ retirement savings. This effort is a continuation of the Setting Every Community Up for Retirement Enhancement (SECURE) Act that was signed into law back in December of 2019.
We wish to highlight just some of the notable changes which may impact how you save for retirement and ultimately use the funds in the future.
Changes to RMDs
- The age at which one must begin to draw money from qualified accounts like 401(k), 403(b), and IRAs has been pushed back again. A few years ago, 70-1/2 was the onset age for Required Minimum Distributions (RMDs), then it became 72, and now it’s 73. In 2035, the RMD age will become 75.
- Additionally, this new law eliminates the RMD requirement for Roth 401(k) plans starting in 2024. Previously, many retirees chose to rollover Roth 401(k)s to Roth IRAs, which don’t have any RMD requirement over one’s lifetime. This new change makes the Roth rollover less necessary.
- The penalty for not withdrawing RMDs by the annual deadline has been reduced from 50% to 25%. If an error has been made, the new penalty for a correction has been reduced to 10% of the required withdrawal amount, assuming it’s handled in a timely fashion.
- Beginning in 2025, people aged 60-63 can contribute more to IRAs, The catch-up contribution limit will be increasing to $10,000 or 50% more than the regular catch-up contribution amount (whichever is greater).
- After 2025, catch-up contributions will be indexed for inflation while IRA catch-up contributions for a person aged 50 will be indexed for inflation beginning in 2024.
- For those with an annual income over $145,000, the catch-up contributions will be designated as a Roth contribution.
529 Plan Rollovers to Roth IRA Accounts
- A new rule beginning in 2024 will allow 529 plan beneficiaries to rollover up to $35,000 of unused funds from a 529 to a Roth IRA over their lifetime. Conditions apply: the 529 plan must be open for at least 15 years prior to rolling it over, and there are annual contribution limits. Also, 529 plan contributions made within the prior 5 years cannot be rolled over, and the Roth IRA that receives the funds must be in the 529 plan beneficiary’s name.
401(k) Automatic Enrollment Expanded
- Beginning in 2025, once eligible to participate, 401(k) and 403(b) plan participants will be automatically enrolled in their company’s plan. The initial contribution default is set at 3% of salary with an increase of 1% each year until a 10% deferral rate is achieved, but no more than 15%. Employees will be able to opt-out of the plan if they choose.
Student-Loan Matching Contributions
- For employees paying toward student loan debt, employers may make matching contributions to the employee’s retirement plan account, up to a certain percentage of the loan amount.
- Beginning in 2024, employers can contribute up to $2,500 into an emergency savings account for employees. Distributions are tax-free if specified conditions are met, much like a Roth account.
Other 401(k) Changes
- A national ‘lost and found’ database will be established to locate missing retirement plan funds.
- Annuities may be included as investment options.
- Plan sponsors will be required to offer clear information about their plan and options for funds withdrawal.
If you have any questions or concerns, please contact us. We would be happy to assist you.