In Perspectives

When the SECURE 2.0 Act was signed into law in December, it had sweeping impacts on retirement savings programs.

The new law builds on the SECURE Act of 2019 and marks Congress’ most recent step toward making retirement savings and security more accessible for U.S. households. SECURE 2.0 implements more than 100 tax and policy reform provisions to expand retirement savings.

Many of the changes do not take effect until 2024 or 2025, but some provisions will impact 2023 planning. Outlined below are highlights of this legislation that could impact you.

Increased retirement savings

Inflation-adjusted catch-up contribution for IRAs beginning in 2024, similar to employer-sponsored plans. Beginning in 2025, individuals 60 – 63 are eligible to contribute $10,000, or 150% of the 2024 catch-up contribution indexed limit. Catch-up provisions will be required to be funded with after-tax dollars for individuals with prior year wages over $145,000.

Student Loan Payments qualify for employer match beginning in 2024. Employees may choose to apply matching employer contributions to qualified student loan payments.

Opportunity to use excess 529 savings to fund Roth IRAs up to $35,000 (lifetime limit) beginning in 2024. Rollovers may not include any contributions made in the five years prior to the rollover and the 529 account must have been open for 15 years or more. There is no income limitation for this transfer but there are earned income requirements for the contributions.

Protects retirement assets

• Changes to the required minimum distribution (RMD) age beginning in 2023. Beginning this year, RMD age increased to 73 (from 72), and it will increase to 75 in 2033.

Roth retirement planning. Roth 401ks no longer require RMDs beginning in 2024, and matching employer contributions to Roth 401(k) and 403(b) accounts will also be available. The match will be included in the employee’s taxable income and must not be subject to a vesting schedule. Also, employers and employees will be allowed to contribute to SIMPLE and SEP Roth IRAs. Such contributions are capped at the lesser of 10% of employee compensation or $5,000.

Expanded exceptions to avoid 10% tax on early distributions.

Reduced penalty for missed RMD. Beginning in 2023, the new law reduces the tax penalty to 25% (from 50%) on the RMD amount that wasn’t withdrawn.

Increased participation in retirement plans

SECURE 2.0 expands the small business (under 50 employees) tax credit for establishing new retirement plans. The annual credit is allowed over three years and is the lesser of 100% of the cost to establish the plan or $5,000.

Effective in 2025 is a requirement for new retirement plans (10 or more employees) to automatically enroll employees when they become eligible and initiate a payroll deduction of between 3% and 10% of income. There will be an option available to opt out, but if it’s not selected, the deferral will increase annually by 1% to a max of between 10% and 15%.

Philanthropy and special needs planning

Retirement assets can fund a one-time distribution of $50,000 to a charitable gift annuity or charitable remainder trust.

• Qualified charitable distributions, currently limited to $100,000, will now be adjusted annually for inflation.

Improved benefits for accounts for individuals with special needs with extended age eligibility. As of 2026, ABLE accounts can be established for individuals who became disabled before age 46 (increased from age 26).

Charitable organizations may now be the remainder beneficiary of a special needs trust without losing the beneficiary’s ability to stretch RMDs over their lifetime.

While some aspects of SECURE 2.0 are still being ironed out, it is already apparent that the law could have a positive impact on retirement savings. Reach out to your Crestwood team if you’re interested in discussing how it impacts you and your planning.

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