Major Retirement Plan Legislation – SECURE Act 2.0

SECURE Act 2.0, a bipartisan bill designed to update retirement plan statutes, was signed into law on December 29, 2022.  Like the SECURE Act from 2019, the intent is to modernize retirement plans and further encourage saving for retirement.  SECURE Act 2.0 includes sections that are effective in 2023 and sections that will impact plan years 2024 and 2025.  Below are some of the notable changes.

Provisions effective on December 29, 2022:

• Defined contribution plans (401(k) as an example) can provide participants the option to treat matching contributions as Roth contributions

Provisions that are effective on January 1, 2023:

• Required minimum distribution (RMD) age increased
• Born 1950 or earlier – April 1 of the year following the year in which the taxpayer turns 72
• Born 1951 to 1959* – April 1 of the year following the year in which the taxpayer turns 73
• Born 1959* or later – April 1 of the year following the year in which the taxpayer turns 75

*  A drafting error currently qualifies persons born in 1959 to meet both the age 73 and 75 definitions.  Presumably this will be corrected and clarified in future legislation.

• Allow SIMPLE IRAs to have a Roth account
• SEP plans may allow employees to treat employer and employee contributions as Roth contributions

Provisions that are effective on January 1, 2024:

• IRA catch-up contributions will now be indexed for inflation in $100 increments
• All catch-up contributions to qualified retirement plans will be treated as Roth contributions (exception is available for employees with compensation of $145,000 or less)
• Eliminates RMDs from designated Roth accounts (generally referred to as Roth 401(k) or Roth 403(b))

Provisions that are effective on January 1, 2025:

• Once eligible, employees will be automatically enrolled in their employer’s 401(k) or 403(b) plan (exception for businesses with 10 or fewer employees)
• Upon attainment of age 60, 61, 62, or 63 during a given plan year, that year’s catch-up contribution will be increased to the greater of $10,000 or 50% more than the regular catch-up contribution (increases indexed for inflation annually)

SECURE Act 2.0 is a vast and complex piece of legislation.  These are just some of the highlights of the provisions that are included.  Additional legislative clarity will likely be needed in the coming years and will be share as it becomes available.