What is Secure 2.0?
On December 29, 2022, the Secure 2.0 Act was signed into law by President Biden as part of the Consolidated Appropriations Act of 2023. The Act has 92 provisions aimed at increasing savings, boosting business incentives, and providing participants with more flexibility when saving for retirement. The SECURE Act (Setting Every Community Up for Retirement Enhancement) of 2019 provided the building blocks for Secure 2.0. Secure 2.0 covers numerous changes to retirement savings for both employers & participants. The Secure 2.0 Act is meant to improve retirement saving options and help Americans prepare for retirement & build a strong financial future.
3 Key Changes with Secure 2.0:
- Required Minimum Distributions (RMDs) Delayed
- Section 107 – increases required distribution age from 72 to 73 (beginning Jan 1, 2023)
- This will increase to the age of 75 in 2033
- Section 302 – Exercise tax (penalty paid if you do not take RMD) goes from 50% down to 25% as of Dec. 31, 2022
- If corrected and participant takes RMD in a timely manner, the exercise tax will reduce to 10%
- Section 107 – increases required distribution age from 72 to 73 (beginning Jan 1, 2023)
- Higher Catch-Up Contribution Limits
- The 2023 catch-up contribution limit for 50+ year old participants who participate in 401(k), 403(b), and most 457 plans is $7,500
- This amount will increase to the greater of $10,000 or 50% of the regular catch-up amount starting 2025 for participants 60-63
- Beginning Jan 1, 2024 catch-up contributions made by participants earning over $145,000/year must be made with after-tax dollars
- The 2023 catch-up contribution limit for 50+ year old participants who participate in 401(k), 403(b), and most 457 plans is $7,500
- Retirement Funds for Emergencies
- Jan 2, 2024 – Secure 2.0 expand access to retirement funds for personal/family emergencies, victims of natural disasters (retro to Jan 26, 2021), and domestic abuse survivors without incurring the 10% penalty
- For example: participants access < $1,000 one time per year from retirement savings for emergency expenses (personal or family) without penalty. Domestic abuse survivors can access the lesser of $10,000/50% of retirement savings without penalty
- This does not apply to CalPERS pension account – the only time you can access CalPERS is when you leave CalPERS employment
- Jan 2, 2024 – Secure 2.0 expand access to retirement funds for personal/family emergencies, victims of natural disasters (retro to Jan 26, 2021), and domestic abuse survivors without incurring the 10% penalty
Some provisions are set to begin in 2023, however most of them will not go into effect until 2024 or later. See the table below with some key provisions & dates.
| PROVISION | APPLIES TO | EFFECTIVE |
| Require catch-up contributions to be made on an after-tax Roth basis for participants with wages in excess of $145,000 for the prior calendar year | 401(k), 403(b) and 457(b) plans | Tax years beginning after 2023 |
| Permit matching contributions on behalf of employees who are repaying student loans | 401(k), 403(b), 457(b) and SIMPLE IRA plans | Plan years beginning after 2023 |
| Exempt in-plan Roth accounts from lifetime RMDs | 401(k), 403(b) and 457(b) plans | Tax years beginning after 2023 |
| Create “starter 401(k)” plans | 401(k) and 403(b) plans | Plan years beginning after 2023 |
| Require new plans to include auto enrollment and auto escalation | 401(k) and 403(b) plans | Plan years beginning after 2024 |
| Increase the catch-up amount for individuals aged 60, 61, 62 and 63 | 401(k), 403(b), 457(b) and SIMPLE IRA plans | Tax years beginning after 2024 |
| Require long-term part-time employees to join 401(k)s sooner | 401(k) and 403(b) plans | Plan years beginning after 2024 |
| Create in-plan emergency savings accounts | 401(k), 403(b) and 457(b) plans | Plan years beginning after 2023 |
| Permit certain rollovers from 529 accounts to Roth IRAs | 529 plans | Distributions after 2023 |
| Replace the Saver’s Credit with the Saver’s Match | IRAs, 401(k), 403(b), 457(b) and SIMPLE IRA plans | Tax years beginning after 2026 |
| Create a retirement savings lost and found | Defined contribution and defined benefit plans | To be developed before 2025 |
The developers at UKG are working on a plan for how this will be deployed in the system and will be communicated in the coming months.
Resources:
SECURE 2.0 is here. What do you need to know? | J.P. Morgan Asset Management (jpmorgan.com)
Disclaimer: These materials are provided for informational purposes only and are not intended as legal or tax advice. Readers of the IBS Blog should contact their legal or tax professionals to discuss how these matters relate to their individual circumstances.