SECURE Act 2.0

Hello friends. Welcome to our summary, overview of the Secure Act 2.0. I trust everyone had a wonderful Christmas and holiday season, and whether you reached your personal goals last year or faced challenges, a new year brings new opportunities and a fresh start. So let's jump right in to our main topic.

Background: Secure Act 1.0

The Setting Every Community Up for Retirement Enhancement Act of 2019, popularly known as the Secure Act 1.0, and it was signed into law in late 2019. Just before COVID. If you remember, it included provisions that raised the requirement for mandatory distributions from retirement accounts and increased access to those retirement accounts. But it didn't take long for Congress to enhance the landmark bill that was enacted barely three years ago, tucked inside, just passed 4,155, page $17 trillion spending package are plenty of changes, including another overhaul of the Nation's retirement system dubbed Secure Act 2.0. It builds on the original Secure Act 1.0 by strengthening the financial safety net by encouraging Americans to save for retirement.

Secure Act 2.0: Nine Key Takeaways

Number One: Changing the Age of Required Minimum Distributions

So here are nine key takeaways on the Secure Act 2.0.

Number one, changing the age of the required minimum distributions. Three years ago, 1.0 increased the age for taking the required minimum distributions or RMDs to 72 years from age 70 and a half. If you turn 72 this year, the age required for taking your RMD rises to age 73 with version 2.0. If you turn 72 in 2022, you will remain on the prior schedule. If you turn 72 in 2023, you may delay your RMD until the year 2024 when you turn 73, or you may actually push back your first RMD to no later than April 1st, 2025. But in doing so, just be aware that you will be required to take two RMDs in the year 2025 one, no later again than April 1st and the second no later than December 31st of that year starting in 2033, the age for the RMD will arise all the way up to age 75. Again, that happens in the year 2033.

Number Two: RMD Penalty Relief

Number two RMD penalty relief beginning this year, the penalty for missing an RMD is reduced to 25% from a whopping 50% and 2.0 goes one step further. If the RMD that was missed is taken in a timely manner and the IRA account holder files an updated tax return, the penalty is reduced to 10%. Now let's be clear though, while the penalty has been reduced, you are still, in essence paying a penalty for missing your RMD.

Number Three: Employer Sponsored Plan Changes

Number three, a shot in the arm for employer sponsored plans. Too many Americans do not have access to employer plans or simply don't participate in them. Starting in 2025, companies that set up new 401k or 4 0 3 B plans will be required to automatically enroll employees at a rate between 3% and 10% of their salary. The new legislation that will also allows for automatic portability, which will encourage folks in low balance plans to transfer their retirement accounts to a new employer sponsored plan rather than cash it out and pay the taxes potentially in order to encourage employees to sign up, employers may offer gift cards or small cash payments. So think of it kind of like a signing bonus.

Employees may opt out of the employer sponsored plan at any time.

Number Four: Increased Catch-Up Contributions

Number four, increased catchup provisions in 2025. Version 2.0 of the ACT increases the catchup provision for those between age 60 and 63 from $6,500 in 2022 $7,500 in 2023. If 50 or older, that increase goes all the way up to $10,000, and that happens to be the greater of $10,000 or 50% more than the regular catchup amount. The amount is indexed of course, to inflation.

Number Five: Charitable Contributions

Number five, charitable contributions starting in 2023, version 2.0 allows a one $50,000 distribution to charities through charitable gift annuities, charitable remainder trusts, and charitable remainder annuities. One must be 70 and a half or older to take advantage of this specific provision. The $50,000 limit does count towards your annual RMD.

It also indexes an annual IRA charitable distribution limit of $100,000, known as a qualified charitable distribution or QCD beginning in 2023.

Number Six: Student Loan Relief

Number six, backdoor student loan relief. Starting next year, employers are allowed to match student loan payments made by their employees. The employers match must be directed into a retirement account, but it is an added incentive to sock away funds for retirement.

Number Seven: Disaster Relief

Additional provisions in 2.0 include number seven, disaster relief. You may withdraw up to $22,000 penalty free from an IRA or an employer sponsored plan for federally declared disasters. Withdrawals can be repaid to the retirement account.

Number Eight: Help for Survivors

Number eight, help for survivors. Victims of abuse may need funds for various reasons, including cash to extricate themselves from a difficult situation and 2.0 allows victims of domestic violence to withdraw the lesser of 50% of an account or $10,000 penalty free.

Number Nine: 529 Plan Rollovers

And number nine, rollover of 5 29 plans starting next year in 2024 and subject to annual Roth contribution limits assets in a 5 29 plan can be rolled into a Roth IRA with a maximum lifetime limit of $35,000. The rollover must be the NA in the name of the plan's beneficiary, and the 5 29 plan must be at least 15 years old. In the past, families have hesitated in fully funding five 20 nines amid fears that the plan could wind up being overfunded and withdrawals would be subject to a penalty. Though there is a $35,000 cap, the provision helps alleviate some of those concerns.

Closing Summary

Well, there you have it. Nine key takeaways from the Secure Act 2.0. What we have provided here is a very high level overview of the Secure Act 2.0. Please keep in mind that it is not all inclusive. There is much more detail behind all of this. However, we are always here to assist you, answer your questions and tailor any advice to your specific needs. Additionally, feel free to reach out to your tax advisor with any tax related questions that you may have. So thanks for tuning in and have a great day.