SECURE 2.0 Retirement Highlights - What You Need to Know

The Consolidated Appropriations Act of 2023 signed into law on Thursday, December 29, 2022, contains the long-awaited provisions of SECURE 2.0. This is a counterpart to the original Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019. 

SECURE 2.0 enhances and builds upon the original to help increase retirement savings in America. Some provisions are effective beginning in 2023 while others are delayed to future years or are retroactive. Final guidance on many of the provisions will be forthcoming in the coming months and years. In the meantime, we have provided an overview in this document of some of the new provisions based on the Summary provided by the Senate Finance Committee found here.

Increases the RMD age beginning in 2023 to age 73 for a person who reaches age 72 after December 31, 2022 and reaches age 73 before January 1, 2033.
Note: Beginning 2033, the RMD age will increase again to 75 for a person who reaches age 74 after December 31, 2032.

Beginning in 2023 tax years, reduces the 50% Penalty Tax for late RMDs to 25%. The 25% is further reduced to 10% if the RMD failure is corrected generally within 2 years of the failure.

    403(b) PLAN CHANGES
    Allows 403(b) plans to operate as MEPS and PEPs.

    Allows 403(b) plans with custodial accounts to invest in collective investment trusts.

    Effective in 2023, allows a plan administrator to rely on an employee’s self-certification that they have had a safe harbor event that constitutes a deemed hardship.
    Note: The American Trust Hardship Application already provides for this, as this now aligns with the IRS guidance already provided.

    Creates an exception to the 10% early withdrawal penalty for distributions to individuals who have a terminal illness.

    Extends the age 50 exception to the 10% early withdrawal penalty to those qualified public safety employees who have separated from service and have attained age 50 or 25 years of service, whichever comes first.

    Effective for disasters occurring on or after January 26, 2021, provides permanent special rules for plan distributions and loans in cases of qualified federally declared disasters of up to $22,000 per disaster.

    Clarifies that employers adopting a MEP can also take advantage of these tax credits.

    Beginning in 2023:
    For a sole proprietor’s first plan year (if the owner is the only employee), allows elective deferrals to be made by the tax filing due date (determined without regard to any extensions).
    Increases the startup expenses tax credit to 100% from 50% for employers with up to 50 employees and provides for an additional credit for 5 years of up to $1,000 per employee equal to the applicable percentage of eligible employer contributions to an eligible employer plan (not including a defined benefit plan). This credit applies to employers with up to 50 employees and is phased out for employers with between 51 and 100 employees. 

    Beginning in 2023, allows a DC plan sponsor to not have to provide annual notices to unenrolled participants except for an annual notice of eligibility to participate during the annual enrollment period.

    In 2026, will require a defined contribution plan to provide at least one benefit statement on paper for each calendar year; and for a defined benefit plan, at least one statement must be provided on paper every three years. More guidance is expected on these requirements.

    Allows a Section 401(a) qualified plan, a Section 403(b) plan, or a governmental 457(b) plan to permit employees to designate employer matching or non-elective contributions as Roth contributions. Matching and non-elective contributions designated as Roth contributions are includable in the employee’s income and must be 100% vested when made.

    Additional changes in 2024:
    Catch-up contributions to Section 401(a) qualified plans, Section 403(b) plans, and governmental Section 457(b) plans must be made on a Roth basis, except for eligible participants whose prior year wages do not exceed $145,000 (indexed for inflation). Note: This requirement does not apply to SIMPLE IRAs or SEP plans.
    RMDs from Roth 401(k) accounts will not be required until after death to conform with current Roth IRA RMD rules.

    Allows self-correction for most plan failures at any time regardless of whether the error is significant or insignificant provided certain conditions are met.

    Provides fiduciary relief for certain overpayments.

    Beginning in 2023 tax years, 457(b) participants can make their deferral rate elections at any time prior to the date that the compensation being deferred is available. This new rule conforms to how 401(k) plans operate. 

    To learn more, click here to read the full SECURE 2.0 summary.

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