The original SECURE Act was signed into law on December 20th, 2019. Its “sequel,” the 4,155-page SECURE 2.0 Act, was similarly enacted at year-end on December 29th, 2022.
Both pieces of legislation seek to reform how Americans prepare for retirement while juggling current spending needs. How, when, or will each of us retire? How can government incentives, regulations, and safety nets help more people safely do so—or at least not get in the way?
These are questions we’ve been asking as a nation for decades, across shifting socioeconomic climates. Throughout, a hard truth remains:
Employers and the government play a role in helping you save for and spend in retirement, but much of the preparation ultimately falls on you. That’s America for you. The good news is, you get to call your own shots. The bad news is, you have to.
Neither the original SECURE Act nor SECURE 2.0 has fundamentally changed this reality. SECURE 2.0 has, however, added far more motivational carrots than punishing sticks.
2 Major Highlights of SECURE 2.0
Implementation for each SECURE 2.0 provision varies from being effective immediately, to ramping up in future years. A few even apply retroactively. Many of its newest programs won’t effectively roll out until 2024 or later, and some not for a decade, giving us time to plan. We’ve noted the year in which each provision is slated to take effect.
Here are our two major highlights from SECURE 2.0:
1) Delayed Starting Ages for Required Distributions (2023-2035)
Not surprisingly, the government would prefer you eventually start spending your tax-deferred retirement savings, or at least pay taxes on the income. That’s why they created Required Minimum Distribution (RMD) rules dictating when you must start taking distributions out of your retirement accounts. Both SECURE Acts have relaxed and refined some of those required distribution rules.
The original SECURE Act postponed when you must start taking required distributions from your retirement account—from age 70 ½ to 72. If you were at least age 72 in 2022, our understanding is that you must take a RMD for 2022.
The SECURE 2.0 Act extends the original SECURE Act's deadline even further.
If you were 71 in 2022, or if you were born between 1951–1959, your forced distributions are delayed until the year you turn 73 (2024-2032).
If you were born in 1960 or after, forced distributions are delayed until the year you turn 75 (2035+).
Delayed Distributions: Opportunity or Future Threat? (2023)
Delayed distributions are relatively meaningless for many Americans who will distribute funds for living expenses regardless of the mandated age.
However, for those that can afford to wait, a delayed distribution can create a potential issue (and therefore, an opportunity for proactive planning).
Since required distributions are delayed, not canceled, future distributions will be larger than they would have been had the SECURE 2.0 not passed into law. As you age, the IRS requires larger forced distributions. Therefore, the income tax bill related to your forced distribution will also be larger! This is likely to be true even in the unlikely event that tax rates remain unchanged and even if your account value remains the same between now and then. Consider how a sudden, larger distribution at RMD age could cause your taxable income to increase, potentially into a higher tax bracket.
Those that can afford to delay and forgo the income should consider income-smoothing strategies before their required distributions begin, such as taking intentional distributions in the form of Roth conversions.
A Roth conversion is the act of transferring funds from a traditional IRA or an employer-sponsored account [401(k), 403(b), etc.] to a Roth account. Since required distributions cannot be converted to Roth without taxing the income twice, performing a Roth conversion before required distributions begin takes advantage of tax brackets that would otherwise be filled up with the burden of forced distributions. Done right, a Roth conversion trims down your retirement account at favorable tax rates. It also can lead to smaller forced distributions at your eventual Required Minimum Distribution (RMD) age.
Plus, Roth conversions build up your tax-free Roth funds, offering a host of golden opportunities and benefits. Read more of our thoughts here about the benefits of Roth conversions and How High Earners Create Tax-Free Roths.
2) Transferring 529 Plan Assets Tax-Free to a Roth IRA (2024)
SECURE 2.0 establishes a narrow path for families to transfer up to $35,000 of untapped 529 college saving plan assets into a beneficiary’s Roth IRA. Proper planning can help families “seed” the beneficiary's retirement savings with their unspent college savings.
Among the qualifying hurdles for the Roth rollover option to be eligible :
Open for ≥ 15 years: The 529 account must have been open for at least 15 years.
Contributed ≥ 5 years ago: The funds in the 529 account that are eligible to be transferred to Roth must have been contributed at least 5 years prior.
$35,000-lifetime cap: There is a $35,000-lifetime rollover cap per beneficiary.
≤ $6,500-yearly cap: There is a $6,500-yearly total rollover and contribution cap per beneficiary.
The yearly cap is subject to IRA contribution limits, meaning the maximum amount that can be rolled over each year is the lesser of $6,500 or the beneficiary's earned income from working at a job (for beneficiaries age 49 and under, in 2023).
So, to roll over the lifetime cap of $35,000 requires the beneficiary to have earned income in the same calendar year. Then, up to $6,500 could be moved for that year from the 529 account to the Roth IRA. There is a dollar-for-dollar reduction for any other IRA contributions the beneficiary makes. If the 529 to Roth IRA rollover was the only contribution to the Roth IRA, it would take approximately 5 years to move $35,000 from a 529 account to one beneficiary's Roth IRA (likely just under 5 years if IRA contribution limits increase as expected).
20+ Other Key Components of SECURE 2.0
There were over 90 provisions in SECURE 2.0. Below we've listed an overview of a few of its other key components.
Aligned Rules & Room to Run for Roths (2023-2024)
Proactive tax planning is a key part of successful retirement savings. One basic tax planning activity most people face is the decision between two different retirement accounts: Regular or Roth.
In both accounts, your retirement savings grow tax-free. The main difference is whether you pay income taxes at the beginning or end of the process. For Roth accounts, you typically pay taxes up front, funding the account with after-tax dollars. Regular retirement accounts (often called "traditional" retirement accounts) are typically funded with pre-tax dollars, and you pay taxes on withdrawals.
If you're trying to decide between funding a regular/traditional account or a Roth account, we've discussed what you need to know here (especially if you're a high income-earner).
To fill in a few missing links between Regular or Roth, the SECURE 2.0 Act:
- Eliminates Required Minimum Distributions (RMDs) for employer-sponsored Roth accounts, such as Roth 401(k)s and Roth 403(b)s, to align with Roth IRA practices (2024). If you’ve been taking RMDs from a Roth 401(k) or Roth 403(b), you should be able to stop doing so in 2024.
- Establishes Roth versions of SEP and SIMPLE IRAs (2023)
- Lets employers make contributions to traditional and Roth retirement accounts, commonly called "matching" funds (2023)
- Lets families potentially move 529 plan assets into a Roth IRA (2024 – as described above)
There’s one thing that’s not changed, although there’s been talk that it might:
There are still no restrictions on “backdoor Roth conversions” and similar strategies some families have been using to boost their tax-efficient retirement resources.
A Boost for Charitable Donors (2024)
Even though Required Minimum Distribution (RMD) dates have been extended as described, you can still make Qualified Charitable Distributions (QCDs) out of your retirement accounts beginning at age 70 ½, and the income is still excluded from your taxable adjusted gross income, as well as from Social Security tax and Medicare surcharge calculations.
Beginning in 2024, the maximum QCD you can make (currently $100,000) will increase with inflation.
Also, with quite a few caveats, you will have a one-time opportunity to use a QCD of up to $50,000 to fund certain split-interest entities, such as a charitable gift annuity, charitable remainder unitrust, or a charitable remainder annuity trust.
Saving More, Saving Better: Individual Savers (2023-2027)
Key provisions of SECURE 2.0 included several updates to encourage individual savers:
Reduced Distribution Penalties (2023)
If you fail to take a Required Minimum Distribution (RMD), the penalty is reduced from a whopping 50% of the distribution to a slightly more palatable 25%. Also, the penalty may be further reduced to 10% if you fix the error within a prescribed correction window.
Enhanced Rules for Surviving Spouses (2024)
If you are a widow or widower inheriting your spouse’s retirement plan assets, you will be able to elect to determine your Required Minimum Distribution (RMD) date as if you were your spouse. This provision can work well if your spouse was younger than you. As described here: “RMDs for the [older] surviving spouse would be delayed until the deceased spouse would have reached the age at which RMDs begin.”
Higher Catch-Up Contributions (2024–2025)
To accelerate retirement saving as you approach retirement age, SECURE 2.0 Act has increased annual “catch-up” contribution allowances for many retirement accounts (i.e., extra amounts allowed beyond the standard contribution limits); and, importantly, tied future increases to inflation. However, in many instances, there are additional rules specific to those aged 60 through 63, or that require high-wage-earners ($145,000/year or higher) to direct their catch-up contributions to after-tax Roth accounts.
Saver's Credit to Become Saver’s Match (2027)
A Saver’s Credit for low-income families will be replaced by a more accessible Saver’s Match for those whose income levels qualify. While the credit offsets income on a tax form, the match will be a direct contribution into your retirement account, of up to $1,000 in government-paid matching funds.
Potential Tax Error “Do Overs” (2025)
To err is human, and often unintentional. As such, SECURE 2.0 has directed the IRS to apply an existing Employer Plans Compliance Resolutions System (EPCRS) to employer-sponsored plans and to IRAs. The details are to be developed, but as described here, the intent is to set up a system in which “most inadvertent failures to comply with tax-qualification rules would be eligible for self-correction.”
Help Finding Former Accounts (2024)
Do you have a long-lost retirement account left with a former employer? Here's how to identify lost accounts and reclaim your money. From retirement accounts to refunded utility payments, safe deposit box contents, and more, you’d be surprised at what may have disappeared over the years.
It can be hard for employers to keep in touch with former employees—and vice-versa. SECURE 2.0 has tasked the Department of Labor with hosting a national “lost and found” database to help you search for plan administrator contact information for former employees’ plans, in case you’ve left any retirement savings behind.
More Flexible Use of Annuities (Varied)
SECURE 2.0 includes several sweeteners for annuity contracts, especially those held in qualified accounts. Up to $200,000 can now be used to purchase certain deferred longevity-related annuities. If you're focused on insuring against longevity risk, make sure to talk with us before you act at www.openwindowFS.com/connection.
Expanded Eligibility for ABLE Accounts (2026)
ABLE accounts help disabled individuals save for disability expenses, while still remaining eligible to collect disability benefits. Before, you had to be disabled before age 26 to establish an ABLE account. That age cap increases to 46.
A Tax Break for Disabled First Responders (2027)
If you are a first responder collecting on a service-connected disability, at least a portion of your disability payments will remain tax-free, even once you reach full retirement age and begin taking a retirement pension.
An Expanded Contribution Window for Non-Employer Sole Proprietors (2024)
If you’re a sole proprietor, you’ll be able to establish a Solo 401(k) through the current year’s Federal income tax filing date, and still fund it with prior-year contributions.
Saving More, Saving Better: Employers (2023-2025)
There also are provisions to help employers offer effective retirement plan programs:
Better Retirement Plan Start-Up Incentives (2023)
Small businesses can take retirement plan start-up credits to offset up to 100% of their plan start-up costs (versus a prior 50% cap). Also, businesses with no retirement plan can apply for start-up credits if they join a Multiple Employer Plan (MEP)—and this one applies retroactively to 2020.
Ability to Offer Small Perks (2023)
Until now, employers were prohibited from offering even small incentives to encourage employees to step up their retirement savings. Now, de minimis perks are okay, such as a gift card when a participant increases their deferral amount.
A New “Starter 401(k)” Plan (2024)
The Starter 401(k) provides small businesses that lack a 401(k) plan a simpler path to establishing one. Features will include streamlined regulatory and reporting requirements; auto-enrollment for all employees starting at 3% of their pay; an annual contribution limit equal to IRA contribution limits, rising with inflation; and a deferral-only structure, meaning the plan does NOT permit matching employer contributions.
A New Household Employee Plans (2023)
Families can establish SEP IRA plans for their household employees, such as nannies or housekeepers.
Faster Plan Participation for Part-Time Employees (2024)
If you’re a long-term, part-time employee, the SECURE Act of 2019 made it possible for you to participate in your employer’s retirement plan. With SECURE 2.0, you’ll be eligible to participate after 2 years instead of 3 years (after meeting other requirements).
Expanded Auto-Enrollment Requirements (2025)
Because you’re more likely to save more if you’re automatically added to your company retirement plan program, auto-enrollment will be required for additional new retirement plans. Even with auto-enrollment, you can still opt out individually. Also, the Act has made a number of exceptions to the rules, including, as described here, “employers less than 3 years old, church plans, governmental plans, SIMPLE plans, and employers with 10 or fewer employees.”
Spending Today, While Still Saving for Tomorrow (2023-2024+)
It can be hard to save for your future retirement when current expenses loom large. We advise proceeding with caution before using retirement savings for any other purposes, but SECURE 2.0 does include several new provisions to help families strike a balance.
Student Loan Payments Count for the "Match" (2024)
If you’re paying off student debt and trying to save for retirement, your student loan payments will qualify as contributions (in a very narrow sense) in your company plan. This means, whether you contribute to your company retirement plan or you make student loan payments, your employer can use either to make matching contributions to your retirement account.
New Emergency Saving Accounts for Employer Plans (2024)
SECURE 2.0 has established a new employer-sponsored emergency savings account, which would be linked to your retirement plan account. Unless you are a “highly compensated employee” (as defined by the Act), you can use the account to save up to $2,500, with your contributions counting toward matching funds going into your main retirement plan account.
Relaxed Emergency Loans from Retirement Plans (2023)
If you end up living in a Federally declared disaster area, SECURE 2.0 also increases your ability to borrow up to 100% of your vested plan balance up to $100,000, with a more generous pay-back window.
Relaxed Emergency Plan Withdrawals (2024)
SECURE 2.0 relaxes the ability to take a modest emergency withdrawal out of your retirement plan. Essentially, as long as you self-certify that you need the money, you can take up to $1,000 in a calendar year, without incurring the usual 10% penalty for early withdrawal. Once you’ve taken an emergency withdrawal, there are several hurdles before you’re eligible to take another one.
Additional Exceptions to the 10% Retirement Plan Withdrawal Penalty (Varied)
SECURE 2.0 has established new exceptions to the 10% penalty otherwise incurred if you tap various retirement accounts too soon. For instance, there are several new types of public safety workers who can access their company retirement plans penalty-free after age 50. Various exceptions are also carved out if you’re a domestic abuse victim, or if you use the assets to pay for long-term care insurance. The Act also has modified how retirement plan assets are to be used for Qualified Disaster Recovery Distributions. Many of the new exceptions are fairly specific, so involve us and check the fine print before you proceed.
How else can we help you incorporate SECURE 2.0 Act updates into your personal financial plans?
The landscape is filled with rabbit holes down which we did not venture, with caveats and conditions to be explored. And there are a few provisions we didn’t touch on here. As such, before you proceed, we hope you’ll consult with us or other competent professionals (such as your accountant or estate planning attorney) to discuss the details specific to you.
In the meantime, consider exploring our SECURE 2.0 Interactive Checklist to identify proactive planning points to consider, highlight important changes that could affect you, and chronologically prioritize which next steps should be taken.
Come what may in the years ahead, we look forward to serving as your guide through the ever-evolving field of retirement planning. Please don’t hesitate to reach out to us today with your questions and comments.
Reference Materials and Additional Reading:
- Congress.gov, H.R.2617 - Consolidated Appropriations Act, 2023 (containing Division T – Secure 2.0 Act of 2022), December 29, 2022.
- Kitces.com, “SECURE Act 2.0: Later RMDs, 529-to-Roth Rollovers, And Other Tax Planning Opportunities,” Jeffrey Levine, December 28, 2022.
- The Street, “How Will SECURE 2.0 Affect You?” Echo Huang, December 29, 2022
- The National Law Review, “SECURE 2.0 Act of 2022 Arrives: (Another) Landmark Retirement Package,” December 23, 2022.
- U.S. House Ways & Means Committee, “The Securing a Strong Retirement Act of 2021.”
- ASPPA, “It’s Official: SECURE 2.0 Enacted into Law,” Ted Godbout, December 30, 2022.