What does the SECURE 2.0 Act mean for retirement planning?

President Biden signed the SECURE 2.0 Act into law on 29th December 2022, affecting many aspects of retirement planning for US connected individuals.

010223 SECURE retirement planning

Swaati Osborne, Head of Wealth Planning, LGT Wealth Management US

President Biden signed the SECURE 2.0 Act into law on 29th December 2022, affecting many aspects of retirement planning for US connected individuals.

This bill builds on the original SECURE (Setting Every Community Up for Retirement Enhancement) Act passed in 2019 and is designed to update US retirement policies and give Americans more flexibility on how to save for retirement.

The legislation includes widespread changes to retirement distribution and contribution rules, student loan debt, 529 education plans and much more. We examine some of the important changes implemented for 2023 onwards.

Required Minimum Distributions (RMDs) - age increase

As of 1st January 2023, the age required to begin drawing on tax-deferred retirement accounts increased from age 72 to age 73. This change benefits individuals by delaying mandatory withdrawals of savings from their retirement accounts. The Act also extends the RMD age to 75, which is effective as of 2033.

Additionally, the updated legislation considers Roth accounts [1] in employer retirement plans such as a Roth 401(k) plan with an employer. Individuals in these plans are required to take mandatory RMDs, however, from 2024, these RMDs for Roth employer plans will be eliminated. This will align the rules with Roth IRAs which do not require RMDs to be taken.

As of 2023, the bill reduces the penalty for missing your RMD from 50% to 25%. This penalty applies to any amount not taken that was calculated as your RMD for the year. The penalty can be further reduced to 10% if the account owner corrects the previously unclaimed amount and submits an amended tax return.

Increased retirement catch-up contributions

IRA catch-up contributions are available to individuals over the age of 50.  These were set at $1,000 and were not indexed for inflation. As of 2024, the SECURE Act 2.0 update will allow this to be indexed, which should result in an increased IRA catch-up amount as the cost of living increases over time.

Secondly, as of 2025, individuals aged 60-63 in an employer retirement plan will be able to make special catch-up contributions up to $10,000 annually. This will also be indexed to inflation.

See below for the current 2023 inflation-adjusted contribution limits for U.S retirement accounts:

Retirement plans
Elective Deferrals 401(k), 403(b), 457 and SARSEPs$22,500
Catch Up Contribution$7,500
IRA or Roth IRA Contribution Limit$6,500
Catch Up Contribution$1,000

Employer plan Roth matching

Formerly, employers could only make matching contributions to their employee retirement plan on a pre-tax basis. The bill amends this to allow employers the ability to make matching Roth contributions if the employee elects this option. The benefits of this are that the contributions made via the Roth option will grow tax-free over time as the initial contributions are made after-tax.

529 college saving plans

SECURE 2.0 includes a provision to allow excess 529 plan savings to be rolled over penalty-free to a Roth IRA plans after 15 years of existence. This effectively provides an avenue to convert education savings into retirement savings without taking a tax hit.

As of 2024, the bill will allow a lifetime maximum of $35,000 to be rolled over to the beneficiaries of a Roth IRA, subject to annual limits. Traditionally, with excess 529 assets, there are limited options on what can be done with the funds. For example, you may take a non-qualified distribution to convert the funds for use, resulting in a 10% tax penalty and federal/state taxes; or the custodian can transition the 529 assets to another beneficiary in the family. Consequently, many families have had fears of overfunding a 529 plan.

With the updated SECURE 2.0 legislation, beneficiaries can now maintain the tax-free status of investment growth and kickstart their retirement savings at a young age.

Student loans

As of 2024, employers will be able to make matching retirement plan contributions to an employee’s plan linked to the employee’s payment of their “qualified student loans”. This is applicable to various plans including 401(k), 403(b), SIMPLE IRAs and government 457(b) plans. This will benefit individuals having difficulty saving for retirement while trying to pay down their student debts at the same time.

Expanding workplace plan access

A large part of the new legislation revolves around expanding access to workplace retirement plans for participants. Namely, new employers implementing 401(k) or 403(b) plans will now be required to automatically enrol eligible employees and provide them a 3% contribution rate. This contribution rate will then be required to increase by 1% until reaching 10%. This applies unless the employee opts out. This rule will begin taking effect in 2025 and existing plans are exempt.

As of 2025, part-time employees will become eligible for their employer’s plan if they have been employed for a minimum of two years and have worked at least 500 hours. This amends the original SECURE Act law, where a three-year minimum was required and also expands access for long-term part-time employees.



[1] A Roth IRA is an individual retirement account (IRA) under United States legislation where an individual pays taxes on money going into the account, but all future withdrawals are tax-free.



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