Signed into law in 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) increased access to tax-advantaged retirement plans, broadened the number of Americans eligible for these plans and helped older Americans build their assets by:
- Removing age limit for IRA contributions
- Allowing graduate students to use IRAs
- Permitting new parents to make penalty-free withdrawals
- Implementing tax credits for small business plans
- Reducing draw-down time for inherited IRAs for non-spouses
In late 2022, the
We will discuss some of the key provisions included in the law, including:
Notable changes to required minimum distributions (RMDs) Upcoming increases to catch-up contributions Qualified Charitable Distribution (QCD) changes Future auto-enrollment in retirement plans Additional exceptions for early retirement plan withdrawals 529 plan transfers to a Roth IRA Emergency savings accounts may be available through your employer The potential for employer match of student loan payments Retirement plan eligibility for part-time employees
Change in required minimum distribution (RMD) start age
The SECURE Act 2.0
If you were born:
- Between 1951 and 1959: Your RMD age is 73.
- In 1960 or later: Your RMD start age is 75.
Missed RMD penalties reduced
The penalty for not taking your RMD in a taxable year is now reduced to 25% of the amount you fail to take (down from 50%).
Roth plan distribution rules changed
A RMD is no longer required for Roth accounts in employer plans (
Increase in catch-up contributions
IRS rules allow workers aged 50 and older to contribute an additional $7,500 per year to workplace retirement plans (like a 401(k( or 403(b)) compared with younger employees. SECURE 2.0 increases these
Changes in Qualified Charitable Distributions (QCDs)
If you are at least 70½,
The Secure Act 2.0 now also makes it possible to give a one-time annual gift of up to $50,000:
- Gifts can go to a
charitable remainder unitrust(CRUT), charitable remainder annuity trust(CRAT) or charitable gift annuity(CGA).
- For the gift to count, it must come from your IRA by Dec. 31.
Auto-enrollment in 401(k) & 403(b) plans
The SECURE Act 2.0 update automatically enrolls new eligible employees in
Church- and government-run plans, as well as new companies (less than three years old) and small businesses (under 10 employees) are excluded.
More exceptions added for early retirement account withdrawals
There always have been exceptions for penalties for early withdrawals (death, disability, first-time home purchase, unreimbursed medical expenses, etc.), and those still apply. Current rules have reduced the penalty for withdrawals taken from retirement accounts before age 59½ to 10%. With over 28% of employees
- Anyone diagnosed with a terminal illness or medical problem that could cause death within 84 months or less has no withdrawal penalty if they pass away in that time frame or repay within three years.
- After December 27, 2020, if the plan owner's residence is located in a federally declared disaster area and they experience disaster-related economic loss, they may withdraw up to $22,000 without penalty.
- Beginning January 1, 2024, individuals experiencing domestic abuse may make hardship withdrawals of $10,000 or 50% of their vested balance, whichever is less. The withdrawal must be made within one year of the abuse and all or part must be repaid within three years to avoid penalty.
- Beginning in 2026, it's possible to withdraw $2,500 per year without penalty for long-term care contract premiums.
- Workers under age 59½ may withdraw up to $1,000 per year without penalty for emergencies and can repay within three years.
- Firefighters, corrections officers and other similar workers do not have a 10% penalty for distributions if they retire in the year they turn 50 or after and have at least 25 years of service with the employer.
529 plan transfers to a Roth IRA allowed in 2024
Beginning in 2024, plan beneficiaries will be allowed to make penalty- and tax-free
- The 529 beneficiary must be the IRA owner and will have to have earned income.
- Rollovers will be subject to the annual Roth IRA limits in the year they are rolled, less any contributions you've previously made for the year (for example, 2023 limits are $6,500 under age 50; $7,500 age 50 or older).
- The 529 plan must be at least 15 years old.
- Any contributions or earnings from the past five years are not eligible to be rolled into the Roth IRA.
- The lifetime maximum of funds rolled over is $35,000.
Emergency savings accounts may be available through your employer
At Thrivent, we encourage clients to build up a
The SECURE Act update allows employers to create emergency savings accounts (separate from retirement savings) for non-highly compensated employees with employee contributions of up to $2,500. Employers can auto-enroll employees and place up to 3% of their pay into them.
Employer match of student loan payments
Beginning in 2024, employers can match payments that plan participants make to their student loans by contributing to those workers' retirement plans—even if the worker does not contribute to the retirement plan themselves. This ensures that even if a worker cannot afford to contribute, they can begin to create a nest egg.
401(k) eligibility for part-time employees
Part-time employees aged 21 and up who work at least 500 hours in each of two consecutive 12-month periods can participate in 401(k) and 403(b) plans. This option begins for plan years after December 31, 2024 and looks only at employment from that date forward to determine eligibility or vesting.
Get help navigating your retirement options
The SECURE Act 2.0 makes qualified retirement plans accessible for more Americans. However, it adds an additional layer of complexity to the already intricate rules governing these accounts. A local