Secure Act 2.0

Secure Act 2.0: An Overview

The Secure Act of 2019 was the biggest legislative change to retirement planning since 2006, and it quickly became overshadowed by the COVID-19 pandemic. But Secure Act 2.0 brings even more changes that could significantly impact how you plan for your retirement.

Required Minimum Distributions (RMDs)

Under the Secure Act, the age at which individuals must withdraw money from certain retirement accounts has changed. The RMD age has now been set at 72 for anyone born in 1950 or earlier, 73 for those born in 1951-59, and 75 for anyone born in 1960 or later. There is also the possibility that some in the group with 73 as their RMD age may be changed to 74. Additionally, distributions must happen by April 1 of the year after attaining the RMD age. If you wait until the following calendar year to withdraw, two distributions will be due that year. And if you fail to take an RMD, penalty fees can be reduced from 50% to 25%, which could go down to 10% if corrected promptly.

Employer-Sponsored Plans

The legislation changes Roth accounts under employer-sponsored plans - they no longer have any required minimum distributions unless they are inherited - while sep IRAs and SIMPLE accounts can now offer Roth options instead of being purely pre-tax investments. Contributions to employee 401k's can also now be made directly into their Roth side, which could create tax consequences for those individuals. It is also possible for 529 college savings plans proceeds to be transferred into Roth accounts under narrow conditions, creating new tax planning opportunities in this area.

Contribution Limits

Secure Act 2.0 provides annual contribution increases based on inflation rather than unpredictable fluctuations. This may provide more predictability when budgeting your long-term savings goals each year..

Other Changes

Other notable changes include incentives for small businesses offering 401(k) plans and employers making student loan payments for employees in place of matching contributions.