On December 23, 2022, Congress passed the SECURE 2.0 Act of 2022 which revised the rules regarding retirement saving. There are many facets to the legislation that change a variety of retirement funding processes. These include:
- Extending the age for beginning required minimum distributions (RMDs). Currently, this age is 72, but SECURE 2.0 changes that to age 73 (for 2023) and will bump the age further until it reaches 75 (in 2033).
- Currently, people aged 50 and older can make catch-up contributions of $7,500 to their 401(k)s. The new law bumps that up to $10,000 in 2025 for those between the age of 60 and 63. Additionally, IRA catch-up contributions will be adjusted for inflation starting in 2024.
- Beginning in 2025, employees will be automatically enrolled in their company 401(k) plan (with a minimum contribution of 3%). Employees can opt-out, but it is hoped that this system will promote higher enrollment and greater retirement savings.
- For qualified retirement plans, employers can now allow a contribution to a Roth for emergency savings, effective 2024. The maximum savings amount is $2,500 per year, and four withdrawals are permitted annually.
- SECURE 2.0 allows 529 accounts to be rolled over to a Roth IRA after 15 years. The Roth IRA must be for the beneficiary, and rollovers are subject to annual and lifetime contribution limits. This can be an efficient way to transfer excess college savings into retirement savings for a young worker.
There are many other provisions in the law. These changes are spread out over the entire retirement framework so while almost all age groups are affected, the impact on any one individual is somewhat limited.
At LPA Strategic Capital, we obviously want to ensure that our clients’ retirement accounts take SECURE 2.0 into consideration. More importantly, we will seek to take advantage of any potential retirement planning opportunities that may be advisable in light of the new legislation. As always, please contact us if you’d like to discuss how SECURE 2.0 may affect your retirement plans.