by Colleen Gillespie
Amidst the holidays, crazy weather, banking crises, indictments, and arraignments, we don’t want to lose sight of some positive changes that occurred thanks to the Secure 2.0 Act, enacted late last year. There are important retirement planning options to consider, effective this year. Below is a short recap of just a few of the highlights of Secure 2.0 Act of 2022 we think may impact your retirement plans. Please contact us if we can help you decipher what’s best for you.
Effective in 2023
- Required Minimum Distribution Age (RMD) – has been increased from 72 to age 73, with an increase to age 75 in 2033. If you have not had to take an RMD yet due to your age, you may now consider delaying another year or so. Also, if you should have taken an RMD but forgot, the penalty for missing a distribution has been reduced from 50% of what you should have taken to 25%.
- Employer Roth Contributions - If you’re working and your employer has a retirement plan like a 401k or 403b that includes matching your contribution at some level, employers may now allow employees to decide if the matching funds are a Roth contribution (after-taxes) or the typical pre-tax contribution.
- New SIMPLE Roth IRA or Roth SEP-IRA – For tax years after 2022, employers may now offer the Roth version of a SIMPLE IRA or SEP-IRA plan, in addition to the regular pre-tax plans. You may contribute up to the limit using after-tax dollars.
Effective in 2024
- SIMPLE IRA Plan Contribution limits raised – The SIMPLE plan contribution and catch-up limits (adjusted for inflation; $15,500 and $3,500 for 2023) are increased 10% for employers with 25 or fewer employees.
- Employer Contribution to Student Loan Payments - Employers with 401(k), 403(b) or SIMPLE plans have the option to make matching contributions on workers’ qualified student loan payments. Matching contributions are also allowed with governmental 457(b) plans.
- High Wage-Earners and Catch-Up Contributions - Catch-up contributions to qualified retirement plans for higher earners (defined as greater than $145,000) are required to be Roth after-tax contributions, even if regular contributions are pretax. Participants with compensation below $145,000 (to be adjusted for inflation) are exempt and can elect pretax or Roth catch-up contributions.
- 529 Education Plans and Rollovers to a Roth IRA -To alleviate fears about having to pay taxes and penalties to access leftover assets in 529 accounts, beneficiaries of 529 college savings accounts can roll up to $35,000 to a Roth IRA tax- and penalty-free over their lifetimes. Such rollovers are subject to Roth IRA annual contribution limits, and the 529 account must be at least 15 years old.
- Employee and Employer Contributions to Emergency Savings Account
Employers have the option to add an emergency savings account to their plan to provide non-highly compensated employees easy, penalty-free* access to emergency funds. Automatic enrollment of up to 3% of salary can be established, and the employee contributions, which are Roth after-tax, are subject to matching. Employers choose the account limit, up to $2,500.
Also, in addition to hardship distribution allowances, one in-service withdrawal per year up to $1,000 is allowed for unforeseen or immediate personal or family emergency expenses without paying an early withdrawal penalty. Once an emergency withdrawal is made, another cannot be made for three years unless the distribution is repaid. Employers are allowed to rely on participant certification that hardship withdrawal requirements are satisfied.
Effective in 2025
- Increased Catch-Up Contributions - If you will be between the ages of 60-63 in 2025, there’s good news as far as an increased catch-up contribution limit — 50% more than the regular catch-up limit or $10,000 more, whichever is greater.
- Employee Retirement Plan Lost and Found - To help individuals find information about previous employers to claim earned benefits, a searchable retirement savings
database will be created by the Department of Labor.
- Automatic Enrollment in Employer Retirement Plans - Unless employees opt out, new 401(k) and 403(b) plans must automatically enroll participants in the plan with a
beginning salary deferral of 3%–10%. Deferrals must increase 1% per year up to 10%–15%. Exemptions apply, including small businesses (10 or fewer employees), new businesses (less than 3 years old), and church and governmental plans. Existing plans are not subject to this provision.
Source: The Capital Group Companies’ “Secure 2.0 Act of 2022: A boost to retirement saving