The Secure 2.0 Act of 2022, otherwise known as the Consolidated Appropriations Act, is a set of modifications to the Internal Revenue Code passed by Congress in December of 2022. This act attempts to secure Social Security, strengthen retirement security, and expand tax incentives for retirement savings.
How the Required Minimum Distribution was Affected
The Required Minimum Distribution (RMD) rules have been changed significantly with this new legislation. RMDs are now calculated from the retirement plan or IRA balance on December 31st rather than the prior year-end balance.
This change is intended to save retirees money by allowing for more significant contributions and catch-up amounts.
The act also changed the age that you have to start taking the RMDs from your retirement plan from 72 to 73, beginning January 1st, 2023. In 2033, this age will move up to 75.
Beginning in 2024, the Secure 2.0 Act will also eliminate RMDs for qualified employer Roth plan accounts.
The penalty for not taking the RMD was reduced to 25% from the current 50%, in most cases. There are some cases where the penalty was reduced to 10%.
Long-Term, Part-Time Employees and Company Retirement Plans
The Secure 2.0 Act requires that long-term, part-time employees be eligible to participate in their company’s retirement plan.
Long-term, part-time employees are now defined as those who worked between 500 and 999 hours for two consecutive years in 2025, compared to three years in the original Secure Act.
Savings for Emergency Expenses
Participants generally will be able to withdraw up to $1,000 per year from their retirement savings account for emergency without being penalized with the 10% tax penalty for early withdrawal that is usually applied if they’re under age 59½.
Also, companies could allow employees to set up an emergency savings account through automatic payroll deductions, limited to $2,500.
Catch-Up Contributions
The Secure 2.0 Act also modified catch-up limits and contributions allowed into plans such as 401(K)s, 403(B)s, 457s, IRAs, and others.
Catch-up contributions to 401(k)s were increased to $7,500 per year for those age 50 or older in 2022 and beyond. This will increase to $10,000 per year in 2025 for participants ages 60-63.
All catch-up contributions for participants earning more than $145,000, will have to be made on a Roth basis, starting January 1, 2024. Other impacts on Catch up contributions that the Secure 2.0 Act had are:
- Catch-up limits are now adjusted for inflation
- Penalty-free withdrawals from IRAs and 401(K)s can be made for the birth or adoption of a child
- Penalty-free withdrawals from IRAs and 401(K)s can be made for education expenses
Student Loan Payments
Under the Secure 2.0 Act, student loan payments can now be treated as retirement contributions for the purpose of qualifying for matching contributions in a workplace retirement account, beginning in 2024.
Employers will be able to make contributions to their company retirement plan on behalf of employees who are paying student loans instead of saving for retirement.
Automatic Enrollment
Beginning in 2025, employers who start new retirement plans are going to be required to automatically enroll employees at a rate of at least 3% but no more than 10%.
New companies in business for less than three years and businesses with 10 or fewer workers are excluded from this requirement.
What Else Has the Act Changed?
The age at which you must begin taking RMDs was raised from 70 ½ to 73 for the year 2023. The secure act also expanded access to retirement plans for part-time employees and made it easier for employers to join open multiple-employer plans.
It also suspended the maximum age limit for traditional IRA contributions, allowing those of any age to continue contributing.
Other things that the act has affected are:
- Penalty-free distributions for new parents.
- Allowing charitable organizations to receive qualified charitable distributions
- Eliminating the stretch IRA provision, which requires non-spouse beneficiaries to withdraw all assets from their inherited IRAs within ten years.
Summary of the Secure 2.0 Act of 2022 by Title
Title I
Title II
Title II increased retirement security with higher contribution limits and catch-up amounts, as well as a provision for the securement of retirement benefits, meaning that more people can secure their retirement plans, making it easier to plan for a secure future.
The secure act increased the contribution limits with an additional catch-up amount for those aged 50 or older.
Title III
Title III created incentives for individuals to save more by expanding tax credits. This means that those saving for retirement can secure more tax savings.
These incentives include an increase in the saver’s credit for certain qualifying individuals, a new credit for employers who offer secure retirement plans, and an “auto-IRA” program which allows employees to save directly from their paycheck into a retirement account.
Title IV
Title IV addressed the securement of student loan debt, meaning more people will be able to secure their student loan debt and their future.
Title V
Title V focused on securement through job training and education programs, meaning more people will have secure access to job training and educational opportunities. The secure act increased access to job training, apprenticeship programs, and career counseling.
Some of this access could look like:
- Expanding access to national service programs like AmeriCorps and Peace Corps.
- Increasing the percentage of funding that states can use for apprenticeship programs.
- Providing grants to employers who offer securement of employment through job training and career counseling programs.
Title VI
Title VI allowed certain withdrawals from 529 college saving plans without penalty, which means that more people will be able to secure their financial futures by securing the funds they need for college.
These withdrawals are tax-free and can be used for expenses such as tuition, fees, books, and supplies.
Title VII
Title VII modified income tax brackets to be more advantageous to middle-class taxpayers. This is helpful for these taxpayers because it allows them to secure more of their earnings and financial futures. The tax brackets were adjusted and lowered for those certain qualifying income earners.
Financial Planning with the Secure 2.0 Act of 2022
The Secure 2.0 Act of 2022 is designed to secure Social Security, strengthen retirement security, and expand tax incentives for retirement savings. It includes changes to the Required Minimum Distribution rules, catch-up limits, catch-up contributions, and other securement provisions. This act could have far-reaching implications for the future of retirement planning in America.
To get the most out of this new legislation, individuals are encouraged to consult a financial advisor or accountant who is knowledgeable about the secure 2.0 Act of 2022 in order to make sure they are taking full advantage of all its benefits. Doing so can help ensure that your money is secure and maximize your securement plans for years to come.
At Iron Point Financial, we have the experience and expertise necessary to help individuals understand, create, and navigate securement plans so you can make the most of the secure 2.0 Act of 2022.
Please call 724-458-5090 if you have any questions or need assistance with securement plans under the Secure 2.0 Act of 2022. You can also visit our services page to learn more about how we can serve you. We look forward to hearing from you!
Disclosure: The opinions are those of the writer, and not the recommendations or responsibility of Cetera Advisor Networks LLC or its representatives. For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice. Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan.
