What is Secure Act 2.0?
President Biden, in December of 2022, signed new legislation titled the Consolidated Appropriations Act of 2023[1].. The Secure Act 2.0 is contained within this larger piece of legislation. The primary purpose of Act 2.0 is to expand retirement coverage and increase retirement savings. Some segments of Act 2.0 took effect immediately while others will be phased in over time[2].
Here are some major takeaways from the Secure Act 2.0:
Raise the required minimum distribution (RMD) age
This is the age when you must begin taking required minimum distributions (RMDs_ from IRAs and workplace retirement plans. The initial age was 72 but has now increased to 75. The rational behind this rule is to ensure that individuals spend their retirement savings during their lifetime and do not use their retirement plans for estate planning to transfer wealth to beneficiaries[3].
Increase in catch-up contributions
A catch-up contribution gives people older than 50 the option to set aside additional income beyond the standard maximum contributions to workplace retirement plans, like 401ks and IRAs. If 50, or older, the catch-up contribution will be increased from $6,500 to $7,500 a year. If one’s age is 60 to 63, the catch-up contribution increases to $10,000 more per year above the standard limit beginning in 20252.
401k plans auto-enrollment
Employers can now initiate an automatic enrollment for 401k plans, and by 2025 this will be a requirement for most employers. Auto-enrollment will encourage employees to save more and increase participation in the workplace plan2.
Retirement plans for those with student loan debt
Many younger employees do not take advantage of retirement plans due to repayments on loan debt. This provision of Secure 2.0 Act will allow employers to contribute to the employee who has student loan debt, even if this employee does not currently contribute to the company’s retirement plan. The employer is allowed to contribute an amount matching the student loan debt repaid by the employee in a given year 2.
Saver’s Match
The Saver’s Credit program gives those with lower income thresholds the ability to claim a tax credit for contributions made to workplace savings or IRA. This credit is being replaced by a “Saver’s Match,” which will equal up to 50% of the first $2,000 contributed to a retirement account each year. This is a federal matching contribution deposited in the saver’s traditional retirement account2.
These are just a few of the key takeaways, but many more areas of change are found in Secure Act 2.0. Read the full document here. Your business can prepare for these changes by informing your employees, choosing plans carefully, and asking for help when needed1.
[1] https://www.benefitspro.com/2023/01/05/2023-the-dawn-of-a-new-era-in-retirement-planning-for-small-businesses/?kw=2023:%20The%20dawn%20of%20a%20new%20era%20in%20retirement%20planning%20for%20small%20businesses&utm_source=email&utm_medium=enl&utm_campaign=bprodailynews&utm_content=20230106&utm_term=bpro
[2] https://www.usbank.com/retirement-planning/financial-perspectives/saving-for-retirement-secure-act.html
[3]https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf