The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was signed into law last week as part of Congress’ $1.7 trillion omnibus spending bill. A version of the act was initially approved in March by the House before going through revisions in the Senate and ultimately landing in the massive omnibus bill.
SECURE 2.0 builds on the 2019 law of the same name and brings about changes designed to enhance the retirement system and make it more accessible to a wider range of people. The act takes up more than 350 pages of the 4,155-page spending bill and contains dozens of detailed provisions. Those wanting to take a deep dive into the legislation can do so here. Everyone else can keep scrolling for some of the key highlights.
Increased age and reduced penalties for RMDs
Beginning on January 1, 2023, SECURE 2.0 will increase the age for Required Minimum Distributions (RMDs) to 73. In 2033, the age will increase again to 75. This applies to the following accounts:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Rollover IRAs
- Most 401(k) and 403(b) plans
- Most small business accounts
The act also reduces the penalties for not taking RMDs from 50% to 25%. The penalties will be even lower for IRA owners. Roth accounts in employer-sponsored plans will be exempt from RMD requirements starting in 2024.
Catch-up contribution rules
IRA catch-up contribution limits will be linked to cost-of-living adjustments, allowing them to increase as inflation dictates. SECURE 2.0 also provides an additional increase in the contribution amount for those ages 60, 61, 62, or 63. This goes into effect for tax years after 2024.
Automatic enrollment and rollovers
To incentivize participation in retirement savings plans, SECURE 2.0 will mandate automatic enrollment for eligible employees. Automatic deferrals start at rates ranging from 3% – 10% and increase by 1% each year to a maximum of between 10% – 15% of compensation.
The act also permits the rollover of default IRAs from one employer to another, unless the participant opts out. Automatic rollovers will be increased from $5,000 to $7,000.
Another big aspect of SECURE 2.0 involves part-time workers’ access to retirement plans. Currently, part-time workers must have 500 service hours in a three-consecutive-year period to be eligible. After 2024, that rule is reduced from three to two years. This will make it easier for long-term, part-time workers to qualify for retirement benefits.
Overview
This is just a brief look at some of the major provisions of the wide-ranging and comprehensive SECURE Act 2.0. Additional provisions involve student loan matching, penalty-free withdrawals for certain emergencies, and 529 educational savings plans. Over time, the bill will introduce multiple changes to the retirement landscape designed to help people better allocate and access their retirement funds. In the coming weeks, IAMS will roll out more SECURE 2.0-related resources so you can help your clients navigate the new rules into an ideal retirement.
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