Secure Act 2.0 – Individuals

Just before the close of 2022, Congress passed a $1.7 trillion government spending bill. Within that 4,000+ page document was Secure Act 2.0, which introduced ~90 new provisions regarding retirement savings. We’re tracking the details of this bill as additional information becomes available, but here are some of the highlights for individual investors:

1) New RMD Age: Starting in 2023, the age for Required Minimum Distributions from retirement accounts will increase to 73. Individuals who have already started taking RMDs, will not be impacted and you will still be required to take your RMD in 2023. For those who turn 72 in 2023, you now have an extra year before you need to start taking your RMDs. An additional provision in the bill is to further increase the RMD age to 75, starting in 2033.

2) Roth Catch-Up Contributions: For employed individuals over age 50, and with wages of $145,000 or more, catch-up contributions to an employer sponsored retirement plan must be made in Roth dollars starting in 2024. This means that your catch-up contribution will be made using after-tax dollars and will no longer be deductible.

3) Employer Plan Catch-Up Amounts: Secure Act 2.0 is also adding a new age group for catch-up contributions starting in 2025. For employees aged 60-63 who participate in a 401(k) plan, you’ll have the ability to contribute the greater of $10,000 or 150% of the “standard” catch-up contribution for 2024. The standard catch-up for 401(k) participants age 50+ in 2023 will be $7,500. Simple IRA plans have a similar provision that will allow for catch-up contributions of $5,000/year for ages 60-63, up from $3,500 for participants aged 50+.

4) IRA Catch-Up Amounts: While catch-up amounts in employer sponsored retirement plans like 401(k)s have been indexed to inflation, increasing steadily over the years, IRA catch-up amounts have remained stagnant at $1,000 for those aged 50+. Starting in 2024, IRA catch-up contribution amounts will also be indexed to inflation.

5) Employer Matching Student Loans: For a lot of young professionals just starting their careers after college, you have the tough choice of deciding between paying down student loans or contributing to your employer retirement plan. Going forward, Secure Act 2.0 will allow your employer to put “matching contributions” into your work retirement plan in the amount in which you’ve paid down your student debt for the year. This is not required, but it might be worth having a conversation with your employer if you fall into this situation.

6) Retirement Savings Lost and Found: Within two years, the Department of Labor will establish an online data base for retirement plan participants and/or their beneficiaries. If you ever have difficulty finding a retirement account from an old employer, or finding a retirement account as a beneficiary, this service will help simplify the process.

7) Auto Enrollment and Escalation: For 401(k) and 403(b) plans established in 2023 or later, new employees must be auto enrolled in the employer’s plan, at a 3% minimum contribution amount. From there, the contribution amount will be increased by 1% per year until it reaches 10%, at which point the employer has discretion to limit contributions to 10% or continue increasing contributions up to a cap of 15% of the employee’s income.

This isn’t an exhaustive list of all of the changes brought forward by Secure Act 2.0, but a summary of the ones that we think will have the largest impact on the individuals we work with. If you have questions about how any of these provisions might impact you, contact your Rockbridge advisor.