The SECURE 2.0 Act of 2022 offers many compelling changes for retirement planning. Amongst the many modifications enacted, some highlights include:
- Required minimum distributions (RMDs):
- Increasing the age for the required beginning date when RMDs must begin from retirement plans. This age is increased from 72 to 73 beginning 1/1/2023 and further increased to 75 beginning 1/1/2033.
- Eliminating RMDs for Roth accounts in employer sponsored retirement plans beginning 1/1/2024.
- Reducing the penalty for failure to take RMDs from 50% to 25% of the required amount. A further reduction from 25% to 10% is offered if the failure to take an RMD from an IRA is corrected in a timely manner (within 2 tax years following the tax year in which the penalty is imposed). Applicable to tax years beginning after the date of enactment of this Act.
- Catch-up contributions:
- Increasing the catch-up limit for contributions to employer sponsored retirement plans by individuals age 60 to 63 to the greater of $10,000 (indexed to inflation after 2025) or 50% more than the regular catch-up limit (limited in 2022 to $6,500, or $3,000 for SIMPLE plans), beginning 1/1/2025.
- Indexing to inflation the $1,000 catch-up limit for contributions to IRAs by individuals age ≥ 50 beginning 1/1/2024.
- All catch-up contributions to qualified retirement plans will be subject to Roth tax treatment beginning 1/1/2024 unless prior-year employee Social Security wages ≤ $145,000 (indexed to inflation). IRS Notice 2023-62 extends the start of this requirement to 1/1/2026.
- Qualified charitable distributions (QCDs):
- A one-time election for a QCD up to $50,000 (indexed to inflation) may be made from an IRA to a split-interest entity, including a charitable gift annuity, charitable remainder unitrust (CRUT), or charitable remainder annuity trust (CRAT). Effective for tax years beginning after the date of enactment of this Act.
- The annual $100,000 QCD limit for IRAs is indexed to inflation. Effective for tax years ending after the date of enactment of this Act.
- Qualified tuition programs (529 plans):
- Beneficiaries of 529 plans may roll over up to $35,000 over their lifetime in aggregate into a Roth IRA tax-free, subject to annual Roth IRA contribution limits. Converted amounts cannot exceed eligible compensation received for the year, though Roth modified adjusted gross income (MAGI) limits do not apply to conversions. The 529 plan must have been open for more than 15 years to be eligible. Additionally, 529 plan contributions (and earnings on those contributions) made within the preceding five years cannot be rolled over into a Roth IRA. Effective for distributions beginning on 1/1/2024.
- Savings:
- The retirement savings contributions nonrefundable credit (Saver’s Credit) under current law is replaced by a Saver’s Match beginning 1/1/2027. IRA and employer sponsored retirement plan contributions receive a 50% federal matching contribution up to a maximum of $2,000 per individual, which must be deposited into an IRA or employer sponsored retirement plan. The Saver’s Match is phased out based on adjusted gross income (AGI), between $41,000 to $71,000 for married filing jointly filers and between $20,500 to $30,500 for single filers.
- Employers may offer non-highly compensated employees a pension linked emergency savings account, capped at a balance of $2,500 (or less, as may be defined by the employer) for the account balance attributable to the employee’s contribution. Contributions are made on an after-tax (Roth) basis. Elective employee contributions may be matched dollar for dollar by employers with an annual matching cap equal to the maximum permissible account balance ($2,500 or less, as defined by the employer). The first 4 distributions annually must be free of any penalties or fees. Upon separation from service, funds may be received as cash or rolled over into a Roth defined contribution plan or IRA.
- Employer matching contributions may be made into a 401(k) plan, 403(b) plan, SIMPLE IRA, or governmental employer sponsored retirement plan (e.g., a governmental 457(b) plan) for qualified student loan payments made by employees (treated as elective deferrals) beginning 1/1/2024.
- Distributions:
- An exception to the 10% additional tax penalty is provided for early distributions made from qualified retirement plan accounts to terminally ill individuals. Effective for distributions made after the date of enactment of this Act.
- Elimination of the 10% additional tax penalty on early distributions from IRAs for corrective distributions of excess contributions and any earnings allocable to those excess contributions. Effective for any determination made on or after the date of enactment of this Act, regardless of when the excess contribution occurred.
- Roth contributions:
- SIMPLE IRAs may accept Roth contributions beginning 1/1/2023.
- Employers may offer employees the ability to characterize employee or employer SEP plan contributions as Roth, in whole or in part, beginning 1/1/2023.
- Employers may offer employees the option of receiving nonelective employer matching contributions into defined contribution plans on a Roth basis, effective upon the date of enactment of this Act.