As 2022 drew to a close, while elections and inflation were getting most of the attention, President Biden signed a consolidation of two pieces of legislation, one from the House of Representatives and the other from the Senate, that is being called the most substantial retirement legislation in our lifetimes. Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 builds on the 2019 SECURE Act to improve retirement savings options and provide a boost to retirement plans across the country.
The Secure Act 2.0 is intended to make retirement savings easier for individuals and their families by making changes to existing rules for retirement savings accounts such as 401(k)s, IRAs, and 529 college savings plans. A few of the key changes included in the Act:
- Raises the starting age for Required Minimum Distributions (RMDs): The age at which owners of retirement accounts must start taking RMDs will increase to 73, starting January 1, 2023. The current age to begin taking RMDs is 72, so individuals will have an additional year to delay taking a mandatory withdrawal of deferred savings from their retirement accounts. SECURE 2.0 also pushes the age at which RMDs must start to 75 starting in 2033. The change gives individuals more time to accumulate funds in their retirement accounts before they have to start taking withdrawals.
- Rollovers of 529 Plan balances to Roth IRAs: Parents and grandparents who invested in 529 college savings plans can now rollover the unused plan balances into Roth IRAs for a beneficiary without incurring taxes on those amounts if they meet certain income requirements. Previously, the funds were taxed upon withdrawal like traditional IRA contributions, that is, when withdrawn prior to age 59½. There are limits as to how much you can rollover but now the IRS has provided some guidance that was absent before Secure Act 2.0.
- Increases catch-up contribution limits: Secure Act 2.0 increases catch-up contribution limits for employees aged 60 or over who are participating in employer-sponsored plans like 401(k)s or 403(b)s from $6,500 per year to $10,000 per year. The change allows individuals nearing retirement to “catch up” with the costs of living they will encounter in retirement, costs that have grown substantially over the years.
- Auto-enrollment in 401(k) plans: Employers can now automatically enroll new employees in 401(k) plans unless the employee opts out, which they can do at any time during the enrollment period up to 30 days after their date of hire. The change makes it easier for employers to help employees save for retirement without having to go through an arduous enrollment process each time a new employee is added onto payroll records.
Overall, SECURE 2.0 contains 92 provisions designed to promote savings, provide incentives for businesses, and give people saving for retirement more flexibility. For more information and help ensuring you are making the best decisions possible with regard to your retirement savings strategy, contact an HBKS financial advisor. Call us at 239-263-1960, or email me at email@example.com.
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