Early Overview of Secure Act 2.0

I promised to all that you would hear from me first when tax laws change.  Even though these are not exactly presents from Santa, an oath is an oath! Version 2.0 of the Secure Act (“Secure 2.0”) was approved by Congress as a part of last week’s omnibus bill.  Secure 2.0 builds upon changes implemented by the 2019 Secure Act, such as expanding retirement plan access.  I have highlighted a few of the many provisions in the massive appropriations bill that I think may impact you below.

529 Plan Rollovers to Roth IRAs

Now unused college savings money in a 529 Plan can be rolled over into a Roth IRA, both tax- and penalty-free.  The 529 Plan must be at least 15 years old and there is a cap on total rollovers of $35K. This may be a big planning opportunity that I am following closely.

Increasing The Retirement RMD Age

The current bill would increase the age for required minimum distributions (“RMD”) from retirement accounts from age 72 to age 73 in 2023, and then to age 75 in 2033.  Additionally, the penalty for failing to take RMDs would be reduced to between 10% and 25% from the current 50% penalty.

Requirements for Automatic 401(k) Enrollment

Businesses with over ten (10) employees will be required to enroll employees in a 401(k) plan and defer 3% of employee compensation into the retirement plan.

Bigger “Catch-Up” Contributions for Individuals Over 50

Under the existing law, one can contribute an extra $6,500 “catch-up” into their 401(k) each year once the age of 50 is reached.  The new law would increase the “catch-up” to $10,000 starting in 2023 for those over age 60.  Additionally, all “catch-up” contributions will be subject to Roth treatment, except for those earning less than $145,000 annually.

Increasing Retirement Plan Access for Part-Time Workers

The 2019 Secure Act enacted law so that employees working between 500 and 999 hours annually for three (3) consecutive years could be eligible for their company’s 401(k) plan.  The new law in Secure 2.0 reduces that to two (2) years of employment for part-time workers.

Employer 401k Match Expansion

The new law may make it easier for employers to pay student loans on behalf of employees rather than match a retirement contribution.

What I have listed above only scratches the surface of Secure 2.0.  There are also expanded tax credits for low-income retirement savings, changes to annuity laws, RMD changes for Roth 401(k)s, and help for retirement savings for military spouses. Please reach out if you have any questions or would like to discuss anything with Secure 2.0 in greater depth as we continue to monitor its impacts to you.