Securing a Strong Retirement Act of 2022 (SECURE 2.0)

Significant provisions of SECURE 2.0 include the following:

  •  Required minimum distributions (RMDs) changes: 
    • The age at which required minimum distributions (RMDs) must be taken increases. First, taxpayers who turn 72 after 12/31/2022 will have to take RMDs at age 73. Second, taxpayers who turn 74 after 12/31/2032 will have to take RMDs at age 75. 
    • Excise tax for failure to take an RMD is reduced from 50% to 25%. If corrected within two years, it is reduced to 10%. 
    • If employee dies before taking RMDs, sole beneficiary surviving spouse may elect to be treated as employee for RMD purposes. 
    • Beginning in 2024 ROTH 401(k) plans are exempt from RMD rules.
  • Expands automatic enrollment in new 401(k) and 403(b) retirement plans beginning in 2025
    • Employers (with limited exception) must automatically enroll employees (who may opt out)
    • Initial year contribution rate must be 3-10% of earnings. Automatic annual 1% increase until employee reaches at least 10%, but not more than 15% (unless employee opts out).
    • Permissible withdrawals allowed after 90 days of first elective contribution.

  • Catch-up contributions changes
    • In 2024 catch-up amounts for 401(k), 403(b) and 457(b) plans must be made to ROTH plans if income is greater than $145,000 in the prior year.
    • In 2025 catch-up amounts for those aged 60-63 for non-SIMPLE plans increased to the greater of $10,000 or 50% more than the regular catch-up amount for 2025.
    • In 2025 catch-up amounts for those aged 60-63 for SIMPLE plans increased to the greater of $5,000 or 50% more than the regular catch-up amount for 2025.

  • 401(a), 403(b) and 457(b) plans may permit some matching contributions and nonelective contributions to be designated ROTH contributions beginning in 2023.
  • Adds exceptions to penalty for early retirement plan withdrawals
    • No penalty on early distributions after 12/29/2022 for an employee with a terminal illness.
    • Exception to penalty on early distributions up to $10,000 in 2024 for domestic abuse victims.
    • In 2024 one penalty free withdrawal for certain emergency expenses up to $1,000 per year.

  • Education related provisions added
    • In 2024 employers can match student loan payments with contributions to employee’s retirement account.
    • In 2024 beneficiaries of 529 college savings accounts may do a direct rollover of any unused balance in their 529 to their ROTH IRA without tax or penalty following special rules.

Other provisions include:

  • Modification of credit for small employer pension plan startup costs in 2023.
  • Beginning in 2023 retroactive first year 401(k) plan elective deferrals for sole proprietors.
  • In 2024 employers can create emergency savings accounts (ROTH) up to 3% of income, limited to $2500 per year. Eligible for an employer match, distributions are tax and penalty free
  • New starter 401(k) deferral-only plan and safe harbor 403 (b) plan for employers with no retirement plan may be started beginning in 2024.
  • Part-time employees can contribute to 401(k)s after 2 years instead of 3 years beginning in 2025.
  • Adds exclusion from gross income for certain service-related first responder disability payments after they reach retirement age beginning in 2027.
  • Revives the rules for retirement distributions and loans that applied to federally declared disaster areas and amends disaster distributions occurring 30 days after 12/27/2020
  • Limitations to charitable conservation easements after 12/29/2022.
  • By the end of 2024 the Department of Labor must create an online database so plan participants and beneficiaries can find their retirement benefits.

About Judy Murray, CPA