The SECURE 2.0 Act

Racing against a winter storm, holiday travels, and a looming exhaustion of government funds, Congress passed a voluminous omnibus (Consolidated Appropriations Act, 2023) spending bill.  The Secure 2.0 Act of 2022 (SECURE 2.0, or the Act) is part of this bill and on December 29, 2022, President Biden signed this spending bill. 

We wanted to make you aware of some of the major retirement- and tax-focused provisions of SECURE 2.0.  Among them are:

1. Expanding Automatic Enrollment in Retirement Plans: New 401(k) and 403(b) plans would have to start enrolling participants with a salary deferral of at least 3% of salary, no higher than 10%, and escalate at 1% per year of service up to a minimum of 10% and maximum of 15%. An employee can opt out of the auto-enrollment and escalation. Small businesses, new businesses and church and government plans are exempted from this provision.

2. Increased tax credits for low-income savers: Starting in 2027, low-income savers could receive a tax credit of 50% of their retirement contributions, up to $2,000.

3. Increase in Age for Required Beginning Date for Mandatory Distributions: The age for required minimum distributions is 72. It is increased to 73 in 2023 and 75 starting in 2033 (for individuals who attain age 74 after December 31, 2032).

4. Higher Catch-up Limit to Apply at Age 60, 61, 62, and 63: For those age 60 through 63, catch-up contribution maximums would be increased to $10,000 or 150% of the regular catch-up amount for those aged 50 and older, whichever is greater.

5. Student Loan Matching: Starting in 2024, employers could match student loan payments with plan contributions. This is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt and thus are missing out on available matching contributions for retirement plans.  The provision would not necessarily be limited to governmental debt and could be applied to any loan taken for higher education expenses.

6. Penalty-Free Withdrawals for Certain Emergency Expenses: Participants would be permitted to withdraw up to $1,000 in one withdrawal per year without an early-withdrawal tax penalty. They would have the option to repay this amount in three years and could not withdraw in this fashion again for three years unless the earlier withdrawal has been repaid. Employers could also offer a retirement plan-linked emergency savings account that would allow four penalty-free withdrawals per year. Employees could contribute a maximum of $2,500 to such an account.

7. Hardship Withdrawals: Participants could withdraw up to $22,000 to pay for expenses related to a natural disaster, which would be taxed as gross income over three years without additional penalty. Survivors of domestic abuse could also withdraw the lesser of $10,000 or 50% of their retirement account without penalty upon self-certifying as a survivor of domestic abuse.

8. Lost and Found: The Department of Labor would have two years to create an online database of plans so that employees and employers could find missing retirement accounts and match them to their corresponding sponsor and participant.

9. Tax-free Rollovers from 529 Accounts to Roth IRAs Permitted: Leftover 529 account savings could be rolled over into a Roth IRA without penalty, provided the rollover amounts fall within IRA limits and the 529 is at least 15 years old.

If you'd like to learn more about SECURE 2.0 and how this affects your personal tax situation, please let us know.  Thank you and we wish you a Happy New Year!