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If you were focused on family over the holidays, you may have missed a significant piece of legislation: SECURE 2.0. The new law makes significant changes intended to save how Americans save for retirement. The changes are broad and different sections are designed to help different groups of people. In general, you should pay attention to what’s changed if:

-       You were born after 1960.

-       You turn 72 in 2023.

-       You’re a parent or guardian.

-       You have student loans.

If so, you may be impacted. With that in mind, let’s get into the legislation everyone’s talking about, including how it may impact your financial plans if you fall into the above groups.


What is SECURE 2.0?

At the close of 2019, Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act as part of year-end appropriations. Similarly, Congress passed the 2.0 version at the close of 2022.

The original legislation changed several key elements of financial planning, particularly for business owners and anyone approaching retirement. Notably, it was the original SECURE Act that raised the age for required minimum distributions (RMDs) from a retirement plan to 72. The act also loosened some of the rules around ongoing contributions to an IRA and added rules around how beneficiaries handle any inherited retirement accounts. (Read more about the original SECURE Act.)

The second SECURE Act, which Congress passed at the end of 2022, takes some of these changes even further. Let’s get into some of the updates in SECURE 2.0.

Adjustments to RMDs

Starting January 1, 2023, you don’t need to take RMDs until you turn 73. However, this only applies to folks who weren’t already taking RMDs. So, if you turned 72 in 2022, for instance, and started taking distributions, you must continue. If you turn 72 in 2023, we can discuss your plan to see if withdrawals still make sense.

If you fail to take RMDs, the penalty is now 25% of the missed amount (it used to be 50%). If you correct the mistake “in a timely manner,” the penalty may be reduced to 10%.

There’s an upside for those currently in their 60s, too. The age is set to increase again in a decade. Starting January 1, 2033, you won’t need to start taking RMDs until you turn 75.

Updates to 529 college savings accounts

If you were worried about saving too much for your child’s college, the latest SECURE Act may provide some relief. Going forward, the beneficiary of a 529 plan can roll up to $35,000 into a Roth IRA account. There are restrictions, naturally: The 529 must have been open for 15 years, rollovers are subject to certain balance restrictions, and standard Roth IRA contribution limits apply.

New employer benefits ahead

Starting next year (2024), employers will be able to “match” employee student loan repayment. Given that as many as 70% of college graduates have student debt, this may become a go-to recruiting tool to help employers attract talent.

Starting this year, employees can allocate their employer match go to a Roth 401(k), if the employer offers one. This assumes the participant is fully vested in these contributions. It’s also important to note that this is an IRS rule change; whether an employer chooses to offer this type of match is discretionary.

One reminder if you want to use this update to add to a Roth 401(k): Unlike Roth IRAs, employer-sponsored Roth plans come with RMDs. That’s set to go away, but not until 2024.

The final boost to employee benefits you may see as a result of SECURE 2.0? More incentives to save for retirement. Starting in 2025, any new retirement plan sponsored by an employer must automatically enroll employees with a default savings rate of at least 3%. It also adjusts the rules on the back end (in terms of how plan administrators operate) with the aim of making it easier to transfer (roll over) your plan when you change jobs.

(Read more about the options for your 401(k) when you switch jobs in our Changing Jobs Checklist.)

New incentives to save

SECURE 2.0 increases the catch-up contribution limits for folks 60 and older starting in 2025. Those limits will start at $10,000 and may increase to reflect inflation. In fact, all catch-up contributions are now subject to inflation adjustments.

For high earners, any catch-up contributions under the new provisions will need to be made to a Roth account.

The law also creates a provision to encourage employees to create an emergency fund, which will take effect in 2024. Essentially, employees learning less than a certain amount may be able to set up a Roth-style account through their employer, if their employer offers a defined-contribution retirement plan. Contributions would be limited, but withdrawals would be tax- and penalty-free if they meet certain requirements.

New incentives to give

Finally, if you’re charitably minded, SECURE 2.0 creates several tax planning opportunities. Taxpayers older than 70½ may elect to give up to $50,000 in a one-time gift to a charitable remainder unitrust, charitable remainder annuity trust, or charitable gift annuity. This update to the qualified charitable distribution (QCD) provision of tax law expands the type of charitable organization donors can direct money toward. Not only that, the lifetime allotment of QCDs—$100,000—will be adjusted for inflation starting in 2024. If you make the gift from a qualified account, it may count toward your RMDs for the year if applicable.

Talk to an expert

Experts are still working out the details for how SECURE 2.0 will be implemented. And there are more provisions than we’ve touched on here. Keep in mind, the legislation is nearly 20 pages long, impacts several government agencies, and will roll out in phases.

While we want to keep you updated on changes that may impact your financial plan, this article is intended to be educational only and is not tax advice. To assess how SECURE 2.0 might affect your family, we recommend meeting with a qualified tax professional.