February 2023 E-Newsletter: Secure Act 2.0 is Finally Law.
Jonathan M. Gardey, MBA, CFA®, CFP®
President and Chief Executive Officer
Congress recently passed a new law with important changes that impact retirement accounts. The law is called the Secure Act 2.0 and it will impact most savers. The following highlights many of the changes contained in the law.
Secure Act 2.0 is Finally Law. Here’s How it Changes the Game for Retirement Savers
Nestled within the more than 4,000 pages of the massive federal omnibus bill passed in late December are 350 pages of the widely anticipated Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022. The broad-ranging SECURE Act of 2019 sequel introduces nearly 150 new provisions which start taking effect in 2023 that will enhance retirement programs for plan participants and sponsors alike.
These are a few of the provisions that will have the most direct impact on retirement savers:
- Increase in the Required Minimum Distribution age
The age at which retirees must begin required minimum distributions (RMDs) was already increased to 72 from age 70 ½ with the SECURE Act of 2019. SECURE Act 2.0 increases the age requirement further to age 73 beginning January 1, 2023, increasing it to age 75 by January 1, 2033.
- IRA catch-up contribution limit indexed to inflation
The $1,000 annual limit on IRA catch-up contributions for individuals aged 50 and older has been static since its introduction. SECURE Act 2.0 now indexes the yearly limit to inflation starting in 2024.
- Increases catch-up limit for ages 60 to 63
The annual catch-up contribution limit for 2022 is $6,500. Section 109 increases the limit to the greater of $10,000 or 50% more than the standard catch-up limit for individuals aged 60 to 63 starting in 2025. The increased limits will be indexed for inflation after 2025.
- Student Loan payments eligible for matching employer contributions
Employers may now treat employees’ student loan payments as elective deferrals for purposes of providing matching contributions to 401(k) and 403(b) plans starting in 2024.
- Paying for emergency expenses eligible for plan withdrawals
Starting in 2024, plan participants may withdraw up to $1,000 annually to pay for unforeseen emergency expenses. Participants have the option of repaying the distributions within three years, during which no further emergency distributions are allowed.
- Allows 529 plan rollovers to Roth IRAs
This provision is a big break for families using 529 plans to fund college expenses. Starting in 2024, 529 plan beneficiaries may roll over up to $35,000 in unused funds over their lifetime to a Roth IRA. The 529 plan must have been open for more than 15 years to be eligible. Rollovers are subject to the regular annual contribution limits for Roth IRAs. Prior to this provision, the distribution of funds from a 529 plan that were not needed for college expenses was taxed and penalized.
- Establishes national search database for “lost” retirement plans
For all the job-hopping retirement savers who may have left behind a retirement plan, this section creates a searchable online database to find them. The database will help locate the contact information for past employers’ plan administrators starting no later than 2025.
- Penalty-free withdrawals from retirement plans for domestic abuse victims
Starting in 2024, self-certified victims of domestic abuse may withdraw the lesser of $10,000 or 50% of their account’s value without incurring a 10% penalty. Though the distributions are taxable, participants will be refunded taxes paid if they repay the distribution within three years.
- Starter 401(k) plans
The “Starter 401(k)” provision addresses the more than 65 million Americans not covered by a workplace retirement plan. Until now, small businesses have been unable to provide a retirement plan provision due to the heavy costs and liabilities involved in establishing and administering them. Beginning in 2023, the Starter 401(k) provision reduces or eliminates those obstacles making it easier and less expensive for small businesses to offer a workplace retirement plan. Starter 401(k) plans will also be eligible for tax credits (established under the first SECURE Act) for offering employees a retirement plan.
- Automatic enrollment in retirement plans expansion
Eligible employees will be automatically enrolled in newly established 401(k) and 403(b) plans. However, employees may opt-out of participation. The coverage for initial automatic enrollment starts at 3% but can be as high as 10%, with automatic increases in 1% increments after that until it reaches 15%. Current 401(k) and 403(b) plans are exempt from the new requirement.
Overview
SECURE Act 2.0 is a significant bill that not only furthers the retirement planning enhancements offered by the first SECURE Act of 2019 but also introduces some game-changing provisions that substantially increase the opportunities for millions of Americans to save for retirement.
At Gardey Financial Advisors, we make it a priority to keep our clients and followers informed, especially when major legislation passes that can impact retirement planning. Of course, we are already taking these changes into account for our clients’ financial and retirement plans. If you are someone in need of guidance, we are here to help.
For more information about the comprehensive planning services we provide, we encourage you to visit our site, learn more about our services, and see if we could be a good match. We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000 in investable assets.
Publication Disclosure:
To better understand the nature and scope of the advisory services and business practices of Gardey Financial Advisors Inc., please review our SEC Form ADV Part 2A and ADV Part 3 (Form CRS) available via the SEC's website, www.adviserinfo.sec.gov. (Click on the link, select “Investment Advisor Firm,” and type in the firm name. Results will provide you both Part 1, 2 and 3 of the Gardey Financial Advisors Form ADV.) Statistics from third-party sources are deemed to be accurate but have not been confirmed by Gardey Financial Advisors.
This communication is for informational purposes only and does not purport to be a complete statement of all material facts related to any company, industry, or security mentioned. The information provided, while not guaranteed as to accuracy or completeness, has been obtained from sources believed to be reliable. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or is a substitute for, personalized investment advice from Gardey Financial Advisors. The opinions expressed reflect our judgment now and are subject to change without notice and may or may not be updated. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied, is made regarding future performance. Readers who are not market professionals or institutional clients of Gardey Financial Advisors should seek the advice of their financial advisor, tax, or legal advisor before making any investment decisions based on this communication. Gardey Financial Advisors does not render legal, accounting or tax advice. Gardey Financial Advisors works closely with our client’s other professional advisors. The solutions discussed may not be suitable for you, even if your situation is like the example presented. Investors must make their own decisions based on their specific investment objectives and financial circumstances. It should not be assumed that the recommendations made in this situation will result in the mentioned outcome. The commentary does not represent any specific clients, investments, or strategies.
Resources:
https://www.legion.org/news/257811/secure-act-20-enhances-retirement-benefits
https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743
https://www.kiplinger.com/retirement/new-rmd-rules