How SECURE Act 2.0 Could Affect Your Retirement
To encourage Americans to save more for retirement, Washington lawmakers recently passed and signed into law the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0. This legislation builds on the 2019 SECURE Act, which ushered in major changes for Americans’ retirement savings and taxation.
The SECURE Act 2.0 contains almost 100 new provisions related to retirement planning. Such a wide-ranging bill will have important consequences for many Americans, especially those saving for and approaching retirement, so it is important to learn what may be in store for you. It’s also worth noting that, while some changes go into effect immediately, others will be rolled out over the next several years.
To help you understand how the SECURE Act 2.0 might affect you, we’ve highlighted six of the most significant changes, along with the year they will go into effect:
You Can Wait Longer to Tap into Your IRA (2023)
- Before SECURE 2.0, you were required to start taking payouts—known as required minimum distributions (RMDs)—from your IRA once you reached 72 years of age. SECURE 2.0 allows you to wait until you are 73 before you must take RMDs from an IRA. For those born after 1960, you can wait until you are 75 before you must start taking your RMDs.
Your Employer Can Make Their Contributions to Your Roth Account (2023)
- Until now, employers made contributions to your retirement plan on a pre-tax basis. Even if you were making Roth 401(k) contributions, any amount contributed by your employer was required to be made to a traditional 401(k) account. Beginning this year, SECURE 2.0 allows employees the option of having employer contributions made to a Roth account. If you do choose to have your employer’s contributions made to a Roth account, you must pay income tax on those contributions during the tax year they are made.
High-Income Earners Must Use Roth Vehicles for Their Catch-up Contributions (2024)
- “Catch-up contributions” allow those 50 years old and older to contribute additional dollars—above the standard limits—to their retirement accounts. Think of it as an additional boost for those nearing retirement. Starting in 2024, those who earn more than $145,000 in wages for the prior calendar year must make these “catch-up contributions” to a Roth account. This means they must pay income tax on those contributions in the tax year they are made.
If You’re Between 60-63, You’ll Be Able to Contribute More to Your Workplace Plan (2025)
- SECURE 2.0 creates an extra catch-up contribution for people ages 60-63. Beginning in 2025, employees in this age range will be able to contribute 150% of the normal catch-up amount to their 401(k) or 403(b) plan. The 2023 ordinary catch-up amount for these plans is $7,500, and in 2025, 50% will be added to this amount, making the new catch-up contribution $11,250. The catch-up contribution is in addition to the standard contribution limit of $22,500 (in 2023), making the total maximum contribution for employees aged 60 through 63 $33,750.
You Can Convert 529 Accounts to Roth IRAs (2024)
- 529 plans are tax-advantaged accounts designed to help you save for educational expenses. Before SECURE 2.0, any earnings in a 529 plan that were distributed for any reason other than a qualified educational expense were subject to income tax and a 10% penalty. Beginning in 2024, you can move 529 plan assets into a Roth IRA account for the beneficiary of the 529 plan. To qualify for this special rollover, the 529 plan account must have been opened at least 15 years ago, and only contributions and earnings on contributions made more than five years ago can be rolled over. The amount that can be moved annually is limited to the Roth IRA annual contribution limit (currently $6,500 if you are under 50 years old and $7,500 if you are over 50 years old) and is subject to a $35,000 lifetime limit per person.
Qualified Charitable Distributions, Adjusted for Inflation (2024)
- Previously, once you reached 70 ½ years old, you could donate up to $100,000 from your IRA to charity and have that donation count towards your RMD for the year. This Qualified Charitable Distribution, or QCD, was created in 2006 and capped at $100,000 at the time. SECURE 2.0 allows this limit to be adjusted for inflation beginning in 2024.
Again, SECURE 2.0 involves dozens of changes to U.S. retirement laws, and these provisions will have different consequences for your financial plan, depending on your unique situation.
The continual evolution of the U.S. tax code and the structure of available retirement vehicles highlight the benefits of working with a comprehensive wealth management firm that takes a complete, integrated view of your financial situation. At Truepoint, our portfolio management, tax strategy, and estate planning professionals work closely together to keep informed of new laws and then respond with tailored strategies, designed to benefit each of our clients.