What the SECURE ACT 2.0 Means For You

What the SECURE ACT 2.0 Means For You. Signed into law on Dec. 29, 2022, the Setting Every Community Up For Retirement (SECURE) ACT 2.0 aimed to improve Americans' retirement options and bolster their financial readiness for retirement. Passed with bipartisan support, the act builds and expands upon the SECURE Act of 2019, which encouraged business owners to set up retirement plans for their employees while allowing plan participants more flexibility in regard to their savings.

The term "retirement crisis" has been circulating in the United States for a while now. 59% of Americans have accepted that they'll have to work longer than they wanted, and 36% say they won't have enough to retire. But, with prudent planning, an experienced financial advisor can help you bridge the gap between where you are now and where you want to be in retirement. For more information about what the SECURE Act 2.0 means for you, or for a consultation on retirement planning in general, call Correct Capital Wealth Management today at 877-930-4015 or contact us online.

What the SECURE Act 2.0 Means For Employees and Retirees

The SECURE Act 2.0 is a long text that amends quite a bit of the Internal Revenue Code and U.S. Law. While it'd be near impossible to go through every change in a blog post, below are some of the most important updates for people who are in or near retirement, and those who are years or decades away from retirement:

Required Minimum Distributions

A required minimum distribution is an annual amount that a plan participant must withdraw from a retirement plan after a certain age to avoid penalties. Previous law required people to withdraw required minimum distributions (RMDs) starting at the age of 72. SECURE Act 2.0, Section 106 was designed so that retirees could allow their retirement savings to keep growing rather than having to withdraw – and possibly pay hefty taxes on – funds they don't yet need as income. The RMD requirements have been updated to:

• If you turn 72 after Dec. 31, 2022 and age 73 before Jan. 1, 2030, RMDs start when you're 73
• If you turn 73 after Dec. 31, 2029 and 74 before Jan. 1, 2033, RMDs start when you're 74
• Anyone who turns 74 after Dec. 31, 2032 must start taking out RMDs when they turn 75

Under SECURE Act 2.0, Section 302, the penalty for failing to take out an RMD is lowered from 50% to 25%. If the failure to take out an RMD is corrected in a timely manner, the penalty is reduced from 25% to 10%.

Lastly, the act ends the RMD requirement for Roth 401(k) plans. Meaning, if you've been paying into a workplace retirement account with Roth contributions, you will not be required to withdraw money from that source of funds before you need it.

Catch-Up Contributions

Catch-up contributions allow people 50 and older to deposit more than the standard contribution limit in a retirement account, making up for younger years when they possibly didn't save as much as they wanted. The SECURE Act 2.0 makes several changes to catch-up contributions, depending on your specific retirement plan.

401(k) Plans

In 2023, you can contribute up to $22,500, and the catch-up contribution limit is $7,500. Beginning in 2025, people between the ages of 60 and 63 will be able to make catch-up contributions of up to $10,000, or 150% of the catch-up limit in a given year after adjusting for inflation. If you make over $145,000 a year (adjusting for inflation in future years), your catch-up contributions must be treated as Roth contributions, meaning they are made with after-tax dollars.

IRAs

The 2023 contribution limit for IRAs is $6,500, and people 50 or older can deposit an extra $1,000. Historically, the base contribution limit has been gradually increased to reflect the cost of living, but increases in the catch-up contribution limit lagged behind. With the SECURE Act 2.0, the catch-up limit will be raised as the cost of living increases.

Student Loan Payments and 529 Conversions

The Secure ACT 2.0 also addresses the financial needs of people who took on debt for previous education expenses, or who are saving for future education expenses:

• Under Section 111, student loan payments can be treated as workplace retirement plan contributions for the purposes of employer matching. This allows employees who are still paying off education-related debt to be able to save for retirement through their employer.
• 529 plans, also known as "qualified tuition plans," are tax-advantaged education plans that allow parents and others to save for future education costs. Previously, if you saved more than what was needed, it was hard to withdraw the money and deposit it somewhere else without significant taxes and penalties. Under the new act, 529 plan assets can be rolled into a Roth IRA after 15 years, up to a lifetime limit of $35,000.

The first tax year both of the above provisions will be enacted is 2024.

Expanded Access to Retirement Funds

The SECURE Act 2.0 also waives or reduces certain penalties for people who need access to their retirement savings before retirement:

• $1,000 per year can be withdrawn from retirement savings for emergencies
• A Roth emergency savings account can be set up with up to $2,500 per participant
• Survivors of domestic abuse can withdraw $10,000 or 50% (whichever is lesser) of their retirement account without penalty
• Victims of a federally declared natural disaster can withdraw up to $22,000 from their account without penalty (the withdrawal will be treated as gross income over the next 3 years)
• If a physician has certified that you have an illness or condition that could reasonably result in death, you can withdraw from retirement accounts without penalty

What the SECURE Act 2.0 Means For Business Owners

The act also creates and updates provisions for employers who sponsor or are considering sponsoring a retirement plan for their employees:

• Automatic enrollment — Beginning in 2025, employers who sponsor new retirement plans must automatically enroll employees at a rate between 3% and 10%. Exceptions apply to new businesses (less than 3 years old) and very small businesses (10 or fewer employees).
• Long-term, part-time employees — If your business offered a retirement plan to full-time employees, you must now offer the same plan to employees who worked between 500 and 999 hours over two consecutive years.
• De Minimis financial incentives — For plans starting in 2023 or later, employers can offer de minimis, or trivial, financial incentives to encourage employees to sign up for the plan. Examples of a de minimis financial incentive can include t-shirts or low-cash gift cards. The incentives cannot become part of the participant's plan assets.
• Increased small business startup credit — Previous law allowed small businesses with up to 50 employees to claim up to 50% of the administrative costs for setting up a new retirement plan, up to $5,000. The SECURE Act 2.0 increases that credit to 100%.
• Starter 401(k) plans — Starting in 2024, small businesses who don't already sponsor a plan can offer Starter 401(k) Plans or Safe Harbor 403(b) Plans to qualified employees. In these plans, the contributions are the same as for an IRA, and employers don't make matching or nonelective contributions. These plans allow owners of even the smallest of businesses to help their employees save for retirement.

While many of the SECURE Act 2.0's retirement plan provisions don't take effect immediately, the benefits of offering a retirement plan to your employees can start today.

SECURE Act 2.0 | Correct Capital Wealth Management

The SECURE Act 2.0 is a sweeping piece of legislation that contains almost 100 new provisions. To consider what the act could mean for you and how to take advantage of some of its provisions, it's essential to talk to an experienced retirement consultant who will know both the details of the new legislation and how to apply it to your specific financial situation and needs. Correct Capital is a Registered Investment Fiduciary with fiduciary advisors who only offer clients our I.O.U. promise: all the advice we give is independent, objective, and unbiased. Call Correct Capital at 877-930-4015 or contact us online to discuss your retirement planning needs today.