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SECURE Act 2.0

The SECURE Act 2.0: Here's What You Need to Know

The SECURE Act 2.0: Here's What You Need to Know

The SECURE Act 2.0 was signed into law by President Biden at the end of 2022, with the intention to significantly improve retirement savings capabilities in the United States. The 2.0 version of this act builds on its predecessor, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The 2.0 iteration contains 92 new provisions to amplify financial success in retirement in the U.S. by encouraging higher retirement savings, incentivizing businesses to set up a retirement plan by lowering the employer costs, and adding greater flexibility and expanded options to augment retirement-saving opportunities.

Some provisions of SECURE 2.0 have already taken effect starting January 1, 2023, with many provisions not coming into play until 2024, 2025, or beyond. Here are the primary highlights to know:

SECURE 2.0 Key Provisions

Effective (Immediately) 2023

  • Small immediate financial incentives for contributing to a plan: Enables employers to offer minor financial incentives, such as low-dollar gift cards, to incentivize employee participation in retirement plans.
  • Roth employer contributions: Employers now have the option to offer their match or profit sharing/non-elective contribution as a Roth contribution.
  • Employees may self-certify hardships.
  • New exclusions from the 10% early withdrawal penalty: Qualified disaster, qualified birth/adoption, terminal illness
  • The required minimum distribution (RMD) age increased to 73: In 2033, the RMD age will increase again to 75.

Effective 2024

  • Roth catch-ups ONLY for high-income earners: Employees earning over $145,000 may only make catch-up contributions as Roth contributions.
  • No RMDs for Roth assets in retirement plans.
  • Employer matching of student loan payments: Employers may choose to apply the retirement plan’s matching formula to employees’ student loan payments and deposit the match into the retirement plan, even if the employees are not participating/contributing to the plan.
  • Additional exclusions from 10% early withdrawal penalty: Employees may make one withdrawal of up to $1,000 for emergency expenses. Employees can repay the withdrawal within three years and may not make another emergency expense distribution within that three-year period unless the previous one is already fully repaid. Cases of domestic abuse are now also excluded (lesser of $10,000 or 50% of employees’ vested account balance).
  • Increased limit on small balance force-outs: From $5,000 to $7,000.
  • Emergency savings “side-car” account linked to a retirement plan: Non-highly compensated employees can be automatically enrolled at 3% and save up to $2,500 in this Roth emergency saving account. It can be accessed tax- and penalty-free.
  • Automatic portability: Employees’ retirement accounts can automatically transfer from their former to their current/next employer.

Effective 2025

  • Higher catch-up limits at ages 60, 61, 62, and 63: Catch-up limit increased to the greater of $10,000 or 50% more than the “regular” catch-up limit for individuals who have attained age 60 but not age 64 before the end of the calendar year.
  • Improving retirement plan access for part-time workers: Currently, long-term, part-time employees who work 500+ hours in three consecutive years must be allowed to save in company retirement plans. The new legislation reduces that from three years to two years.
  • Your plan amendments: Plan amendments made to comply with the Act must be adopted by the end of the 2025 plan year (2027 for governmental plans).

Effective 2027

  • Saver’s match replaces saver’s credit: A government/Treasury match of 50% of retirement plan contributions, up to $2,000 per employee, for low-to-moderate income workers.

Final Points

With Secure Act 2.0 now in effect, investors have more options than ever before when it comes to managing their retirement savings and planning for a secure financial future. This additional flexibility and increased access should help individuals save more money towards retirement and achieve greater financial security around their golden years. This statute serves as a welcomed development to provide improved opportunities for more Americans to enroll in a retirement savings plan and maximize abilities to amplify savings. Consult your financial advisor to learn how SECURE 2.0 impacts your retirement planning strategies.

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