SECURE 2.0 Wealth Highlights - What You Need to Know

The Secure 2.0 Act is a piece of legislation designed to improve retirement security for Americans. It contains 92 provisions, has received almost universal support, and was recently signed into law by President Joe Biden. Among other things, the Act includes provisions to expand access to employer-sponsored retirement plans, increase catch-up contributions and retirement plan limits, and introduces new Required Minimum Distribution (RMD) rules.

Some of its provisions are effective immediately, while others will take effect in coming years. Below are some of the highlights from Secure 2.0 that apply most to individuals, organized by implementation period:

Immediate Implementation:

SIMPLE and SEP Roth IRAs - Allows SIMPLE IRAs to accept Roth contributions and allows employers to offer employees the ability to treat employee and employer SEP contributions as Roth.
Hardship withdrawals related to natural disasters - Participants allowed to withdraw up to $22,000 to pay for expenses related to a natural disaster, taxed as gross income over three years without additional penalty.
Financial incentives to boost participation - Employers may offer de minimis financial incentives, not paid for with plan assets, such as low-dollar gift cards, to boost employee participation in workplace retirement plans.
IRA Charitable Distributions - Expands the IRA charitable distribution provision to allow for a one-time, $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. Indexes for inflation the annual IRA charitable distribution limit of $100,000.

Starting during 2023:

RMD Age Requirement – Required minimum distribution age increases to 73.
RMD Penalties – The penalty for failure to take required minimum distributions reduces from 50% to 25%. Further, if a failure to take a required minimum distribution from an IRA is corrected in a timely manner, as defined under the Act, the excise tax on the failure is further reduced from 25% to 10%.
Deferral Limits – 401(k) deferral limits increase to $22,500, catch-up contributions increase to $7,500 for those at least 50-years-old.

Starting in 2024:

529 plan transfers to Roth IRAs – Leftover 529 account savings able to be rolled over into a Roth IRA without penalty, subject to IRA contribution limits, up to a max of $35,000 over the course of a lifetime.
Catch-up contribution tax treatment - All catch-up contributions to qualified retirement plans are subject to Roth tax treatment, except for employees with compensation of $145,000 or less.
Emergency retirement plan distributions – Participants allowed to withdraw up to $1,000 in one withdrawal per year without early-withdrawal tax penalty and has up to 3 years for repayment. No further emergency distributions are permissible during the 3-year repayment period unless repayment occurs.
Penalty-free withdrawals for survivors of domestic abuse – Survivors of domestic abuse allowed to withdraw the lesser of $10,000 or 50% of their retirement account without penalty upon self-certification as a survivor of domestic abuse.
Roth 401(k) RMD requirements – Roth 401(k)s exempt from pre-death RMD requirements.
Matching of employee student loan payments – Employers allowed to match employee student loan payments with contributions to workplace retirement plans.
IRA limits – IRA contribution limits indexed to inflation.

Starting in 2025:

Mandatory automatic-enrollment and savings escalators – New 401(k) and 403(b) plans required to auto-enroll participants with salary deferral of at least 3% and not more than 10%, escalating at 1% per year of service up to a minimum of 10% and maximum of 15%.
Special retirement plan catch-up contributions – Special retirement plan catch-up contribution of up to the greater of $10,000 or 50% more than the regular catch-up amount in 2025 for savers between the ages of 60 through 63 begins, indexed to inflation after 2025.

Starting in 2027:

Implementation of a Saver’s Match – Lower-income savers eligible for a “saver’s match” equal to 50% of their retirement contributions, up to $2,000.

Starting in 2033:

RMD Age Increases – Required minimum distribution age increases to 75.

And for fans of the TV show Yellowstone:

Charitable Conservation Easements - Disallows a charitable deduction for a qualified conservation contribution if the deduction claimed exceeds two-and one-half times the sum of each partner’s relevant basis in the contributing partnership, unless, holding period, partnerships, or historical structure tests are met.

Overall, SECURE 2.0 is a significant improvement for retirement planning in the United States. It expands access to workplace retirement plans by making it easier for small businesses to offer them, and it also provides new options for retirement savings. Additionally, SECURE 2.0 increases the incentives for employers to offer retirement plans, which will likely lead to more Americans having access to these important benefits. SECURE 2.0 is an important step forward in helping Americans secure their financial futures and achieve a comfortable retirement.

As your trusted fiduciary, American Trust Wealth Management will always bring you the most up-to-date information and communicate regulatory changes that may impact your financial future. Please contact your Fiduciary Investment Advisor for any specific questions on how Secure 2.0 might impact you as we work to maximize these updates for better client outcomes.


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