The SECURE Act 2.0, enacted in late 2022, has dozens of provisions intended to encourage more people to save through workplace and other plans, help boost retirement savings, and urge small employers to offer retirement plans. Some of the provisions went into effect in 2023. Others start in 2024, 2025, 2026, and 2027.
It’s important to remember that regulations can change without notice, and there is no guarantee that the treatment of certain rules will remain the same in 2024 and beyond.
Below are the most significant SECURE 2.0 provisions that go into effect this year:2,3
1. Changes to RMDs in Roth Accounts: Roth accounts in employer retirement plans are exempt from the required minimum distribution (RMD) requirements.
2. IRA catch-up contributions: IRA catch-up contributions, previously limited to $1,000 for people aged 50 and over, will be indexed to inflation, meaning that they could increase yearly based on federally determined cost-of-living increases.
3. Student loan benefit: Employers can now “match” employee student loan payments with matching payments to a retirement account such as a 401(k) plan, giving workers a potential added employee benefit and an extra incentive to save for retirement while paying off educational loans.
4. Tax and penalty-free rollovers from 529 accounts to Roth IRAs are now allowed under certain conditions. Beneficiaries of 529 accounts who did not use all the assets for education are permitted to rollover up to $35,000 (lifetime limit). This is subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years.
5. SIMPLE account changes: Employers are allowed to make additional contributions to employee SIMPLE accounts, up to either 10% of compensation or $5,000, whichever is lower, indexed for inflation after 2024.
6. Distributions from retirement plans for personal emergencies are allowed penalty-free for one distribution per year of up to $1,000, with the option to repay the distribution within three years.
There are nuances and complexities to these rule and regulation changes and how each could impact your retirement preparedness, tax considerations, estate strategies, or college savings.
ASI is here to help our clients navigate these changes.
1. This article is for informational purposes only and is not a replacement for real-life advice. Consult your tax, legal, and accounting professionals before modifying your tax strategy.
2. Fidelity.com, November 2023
3. ASPPA, January 2023
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a 5-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawals can also be taken under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.
Once you reach age 73, you must begin taking RMDs from a traditional IRA in most circumstances. Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Once you reach age 73, you must begin taking required minimum distributions (RMDs) from your 401(k) or any other defined contribution plan in most circumstances. Withdrawals from your 401(k) or any other defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
A 529 plan is a college savings plan that allows individuals to save for college on a tax-advantaged basis. The state tax treatment of 529 plans is only one factor to consider before committing to a savings plan. Also, consider any fees and expenses associated with a particular plan. Whether or not a state tax deduction is available will depend on your state of residence. State tax laws and treatment may vary. State tax laws may be different from federal tax laws. Earnings on nonqualified distributions will be subject to income tax and a 10% federal penalty tax.
Like a traditional IRA, withdrawals from a SIMPLE IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. In most circumstances, once you reach age 73, you must begin taking required minimum distributions.
This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm.