Secure Act 2.0 Enhances Retirement Benefits
The Secure Act 2.0 was included in the Consolidated Appropriations Act of 2023 (H.R. 2617). It includes many changes that are intended to enhance and facilitate retirement benefits.
Since passage of the original Secure Act in 2019, both House and Senate Members have been working on further changes to encourage saving for retirement. The Secure Act 2.0 will increase the required minimum distribution age, allow a larger catch-up contribution limit, facilitate rolling some Section 529 plans into Roth IRAs and generally expand access to retirement plans for moderate and lower-income employees.
Senator Ron Wyden (D-OR) is Chair of the Senate Finance Committee. He stated, "Americans deserve dignified retirements after decades of hard work, and our bill is an important step forward."
Brian Graff, CEO of the American Retirement Association stated, "We are grateful to the many members of Congress and staff who worked tirelessly to get Secure 2.0 included in the omnibus legislation…This important legislation will enhance the retirement security of tens of millions of American workers – and for many of them, give them the opportunity for the first time to begin saving."
Paul Richman from the Insured Retirement Institute, noted, "Including Secure 2.0 retirement provisions in the last major legislation of the year means that Congress is poised to help millions more workers and retirees with significant improvements to the nation's private retirement system."
1. Required Minimum Distribution Age — Starting in 2023, the age for required minimum distributions (RMDs) will increase from 72 to 73. The RMD age will increase again in 2033 to age 75. Individuals who are currently taking RMDs will continue to take a distribution each year based on their age.
2. Catch-Up Contributions — Individuals who are age 50 and older are permitted to make an additional catch-up contribution. During 2023, the catch-up contribution for retirement plan participants over age 50 is $7,500. However, starting in 2025 individuals who are 60, 61, 62 or 63 will be permitted to make a larger catch-up contribution. The new amount will be the greater of $10,000 or 150% of the catch-up limit for that year, indexed for inflation.
3. Matching Contributions for Student Loan Payments — Many younger workers have substantial student loans and may not be able to make both their student loan payments and fund a retirement plan. Employers will be permitted to match the student loan payments with a contribution to a Section 401(k) or 403(b) retirement plan.
4. Roth 401(k) Plans Exempt from RMDs — The Roth IRA is currently exempted from distributions even if the owner has reached the normal RMD age. Starting in 2024, Roth 401(k) plans also will be exempted from RMDs. With no required distributions, Roth IRA and 401(k) plans will be permitted to increase in value during the life of the owner.
5. Required Minimum Distribution Penalty — The existing penalty for failing to take a required minimum distribution is 50%. Starting in 2023, this penalty will be reduced to 25%. If the plan participant corrects the failure in a timely manner, the excise tax on the penalty is reduced further to 10%.
6. Section 529 Plans Rollover to Roth IRAs — A Section 529 plan is frequently used for college savings. If the 529 plan is no longer required because the beneficiary has completed his or her education, then up to $35,000 of that plan may be rolled over into a Roth IRA for the benefit of that individual.
7. Qualified Charitable Distributions Enhanced — The IRA charitable rollover or qualified charitable distribution (QCD) limit of $100,000 for 2023 will be indexed for inflation starting in 2024. Individuals age 70½ or older are permitted to make distributions from their IRA directly to charity and avoid recognition of income. The act expands the QCD by allowing a one-time transfer of up to $50,000 to a charitable remainder annuity trust, a charitable remainder unitrust or an immediate charitable gift annuity.
8. Roth Catch-Up Contributions — Individuals age 50 and above are permitted to make a catch-up contribution to a retirement plan. Starting in 2024, individuals who have incomes over $145,000 will be required to transfer their catch-up contribution to a Roth IRA. This will require them to pay tax on the catch-up contribution, but the future distributions from the Roth account will be tax free.
Sen. Wyden concluded, "We are making significant progress for millions of low- and middle-income workers, who are far less likely to have retirement savings. These workers often have demanding, physical jobs, and depend solely on their Social Security income. For the first time, millions more workers would access resources for retirement and see federal retirement contributions year after year, even if they have no tax liability. These are reforms that will make a meaningful difference for workers who have struggled to save."
Since passage of the original Secure Act in 2019, both House and Senate Members have been working on further changes to encourage saving for retirement. The Secure Act 2.0 will increase the required minimum distribution age, allow a larger catch-up contribution limit, facilitate rolling some Section 529 plans into Roth IRAs and generally expand access to retirement plans for moderate and lower-income employees.
Senator Ron Wyden (D-OR) is Chair of the Senate Finance Committee. He stated, "Americans deserve dignified retirements after decades of hard work, and our bill is an important step forward."
Brian Graff, CEO of the American Retirement Association stated, "We are grateful to the many members of Congress and staff who worked tirelessly to get Secure 2.0 included in the omnibus legislation…This important legislation will enhance the retirement security of tens of millions of American workers – and for many of them, give them the opportunity for the first time to begin saving."
Paul Richman from the Insured Retirement Institute, noted, "Including Secure 2.0 retirement provisions in the last major legislation of the year means that Congress is poised to help millions more workers and retirees with significant improvements to the nation's private retirement system."
1. Required Minimum Distribution Age — Starting in 2023, the age for required minimum distributions (RMDs) will increase from 72 to 73. The RMD age will increase again in 2033 to age 75. Individuals who are currently taking RMDs will continue to take a distribution each year based on their age.
2. Catch-Up Contributions — Individuals who are age 50 and older are permitted to make an additional catch-up contribution. During 2023, the catch-up contribution for retirement plan participants over age 50 is $7,500. However, starting in 2025 individuals who are 60, 61, 62 or 63 will be permitted to make a larger catch-up contribution. The new amount will be the greater of $10,000 or 150% of the catch-up limit for that year, indexed for inflation.
3. Matching Contributions for Student Loan Payments — Many younger workers have substantial student loans and may not be able to make both their student loan payments and fund a retirement plan. Employers will be permitted to match the student loan payments with a contribution to a Section 401(k) or 403(b) retirement plan.
4. Roth 401(k) Plans Exempt from RMDs — The Roth IRA is currently exempted from distributions even if the owner has reached the normal RMD age. Starting in 2024, Roth 401(k) plans also will be exempted from RMDs. With no required distributions, Roth IRA and 401(k) plans will be permitted to increase in value during the life of the owner.
5. Required Minimum Distribution Penalty — The existing penalty for failing to take a required minimum distribution is 50%. Starting in 2023, this penalty will be reduced to 25%. If the plan participant corrects the failure in a timely manner, the excise tax on the penalty is reduced further to 10%.
6. Section 529 Plans Rollover to Roth IRAs — A Section 529 plan is frequently used for college savings. If the 529 plan is no longer required because the beneficiary has completed his or her education, then up to $35,000 of that plan may be rolled over into a Roth IRA for the benefit of that individual.
7. Qualified Charitable Distributions Enhanced — The IRA charitable rollover or qualified charitable distribution (QCD) limit of $100,000 for 2023 will be indexed for inflation starting in 2024. Individuals age 70½ or older are permitted to make distributions from their IRA directly to charity and avoid recognition of income. The act expands the QCD by allowing a one-time transfer of up to $50,000 to a charitable remainder annuity trust, a charitable remainder unitrust or an immediate charitable gift annuity.
8. Roth Catch-Up Contributions — Individuals age 50 and above are permitted to make a catch-up contribution to a retirement plan. Starting in 2024, individuals who have incomes over $145,000 will be required to transfer their catch-up contribution to a Roth IRA. This will require them to pay tax on the catch-up contribution, but the future distributions from the Roth account will be tax free.
Sen. Wyden concluded, "We are making significant progress for millions of low- and middle-income workers, who are far less likely to have retirement savings. These workers often have demanding, physical jobs, and depend solely on their Social Security income. For the first time, millions more workers would access resources for retirement and see federal retirement contributions year after year, even if they have no tax liability. These are reforms that will make a meaningful difference for workers who have struggled to save."
