Retirement savings plans are undergoing significant changes to ensure that more Americans can save for retirement and increase the amount they can save. Our Tax team is pleased to bring you the latest update on The SECURE 2.0 Act, which was signed into law by President Biden on December 29, 2022.
Initially passed in December 2019, the original SECURE Act was part of the Consolidated Appropriations Act of 2020. The Senate Finance Committee later presented the EARN Act, which did not pass, but in March, the House passed a version of the bill known as the SECURE Act 2.0, which contains the final, bi-partisan supported legislation.
SECURE 2.0 Act intends to increase retirement savings and access to 401(k)/individual retirement accounts, particularly for low- and middle-income workers and those with significant student debt. The number of small businesses’ retirement plans for workers will be boosted, and access will be improved for those with no long-term retirement accounts.
The retirement plan provisions within the SECURE 2.0 Act can be found in H.R. 2617 — the Consolidated Appropriations Act (also known as the Omnibus Bill) of 2023. The most significant of the myriad of updates are summarized below for your convenience.
SECURE 2.0 Provision Highlights for Individuals
- Increases the mandatory Required Minimum Distribution (RMD) age limit from age 72 to age 73 beginning in 2023 and then to age 75 starting in 2033;
- Increases 401(k) and 403(b) plan catch-up contribution limits;
- Requires all catch-up contributions to qualified retirement plans by employees with compensation over $145,000 be subject to mandatory Roth tax treatment (after-tax), effective for post-2023 taxable years;
- Increases the annual contribution for employee deferral and catch-up contributions to SIMPLE plans by 10% (employers with more than 25 employees would also have to increase their matching contributions) and allows employers to make additional nonelective contributions to SIMPLE plans, effective beginning with the 2024 taxable year;
- Allows for the creation of Roth SIMPLE IRAs and Roth SEP IRAs beginning with the 2023 taxable year;
- Removes the RMD requirement for employer-sponsored Roth accounts, such as Roth 401(k)s;
- Allows sole proprietors (and SMLLCs) who set up solo 401(k) plans after the end of the taxable year to make both deferral and matching contributions by the due date of the owner’s income tax return;
- Replaces the IRC §25B Qualified Retirement Savings Contribution Credit with a federal government matching fund program for low and middle-income individuals that contribute to a qualified retirement program, effective beginning with the 2027 taxable year;
- Makes it easier for an individual to purchase a qualifying longevity annuity contract (QLAC) with retirement savings by easing current limitations;
- Allows penalty-free rollovers from IRC §529 accounts that have been open for more than 15 years to Roth IRAs (subject to annual Roth contribution limits and a $35,000 lifetime cap), effective for distributions made after 2023;
- Expands the list of exceptions from the 10% early withdrawal penalty for various types of retirement distributions; and
- Expands the income exclusion for health insurance premiums of retired public safety officers.
SECURE 2.0 Provision Highlights for Employers
- Mandates automatic enrollment for new 401(k) and 403(b) plans offered by employers (with the option for employees to opt out) for plan years beginning after 2023;
- Expands the mandated 401(k) coverage for long-term, part-time workers enacted by the SECURE Act by shortening the three years of service eligibility rule to two years, effective for plan years beginning after 2024, and extends the mandate to 403(b) plans; and
- Allows employers to replace SIMPLE retirement accounts with safe harbor 401(k) plans that require mandatory employer contributions, effective for post-2023 plan years.
It is important to note that this is a summary and is not inclusive of all SECURE 2.0 Act changes. We anticipate that many will need help steering decisions. You may also want to revisit our recently published article, 2023 Retirement Contribution Limits Adjusted for Inflation.
Count on us to hehttps://www.grimbleby-coleman.com/resources/articles/2023-Retirement-Contribution-Limits-Adjusted-for-Inflationlp you keep your business in the loop about these sweeping changes to our retirement system. Our team can help you determine which changes apply to your employee benefit plan and when they need to be implemented. Contact us by email or phone at 209-527-4220.