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Secure Act 2.0

Updated: Oct 15, 2023



In short, SECURE 2.0 is a legislative attempt to increase retirement savings, particularly for low- and middle-income workers. It is also intended to increase the number of small businesses offering retirement plans to their workers and provide access to others who don’t yet have long-term retirement accounts. The Secure Act 2.0 is comprehensive and details many different scenarios so which may or may not apply directly to you. Continue reading for the Secure Act 2.0 long version.


Pension Plan Start-up Costs

This is a modification of credit for small employer pension plan startup costs. The changes increase the startup credit from 50 percent to 100 percent for employers with up to 50 employees, but excludes defined benefit plans.


Additionally, there will be a percentage of the amount contributed by the employer on behalf of employees, up to a per-employee cap of $1,000. This full additional credit is limited to employers with 50 or fewer employees and phased out for employers with between 51 and 100 employees. The applicable percentage is 100 percent in the first and second years, 75 percent in the third year, 50 percent in the fourth year, 25 percent in the fifth year – and no credit for tax years thereafter. Section 102 is effective for taxable years beginning after December 31, 2022.


Required Minimum Distributions (RMD’s)

The age to start taking RMDs increases to 75 in 2023, and the penalty for failing to take an RMD will decrease to 25%, and 10% if corrected in a timely manner for IRA's. That’s down from 50%. Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.

Catch-up contributions will increase to $10,000 annually in 2025 for 401(k), 403(b), governmental plans, and IRA account holders. Defined contribution retirement plans will be able to add an emergency savings account associated with a Roth account.


Higher catch-up contributions

Starting January 1, 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions up to $10,000 annually to a workplace plan, and that amount will be indexed to inflation. One caveat: If you earn more than $145,000 in the prior calendar year, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. Individuals earning $145,000 or less, adjusted for inflation going forward, will be exempt from the Roth requirement.


Matching for Roth accounts

Employers will be able to provide employees the option of receiving vested matching contributions to Roth accounts. Previously, matching in employer-sponsored plans were made on a pre-tax basis only!


Qualified charitable distributions (QCDs)

Beginning in 2023, people who are age 70½ and older may elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. This is an expansion of the type of charity, or charities, that can receive a QCD. The amount counts toward the annual RMD, if applicable.


Other changes for annuities

Qualified longevity annuity contracts (QLACs) are getting a boost. QLACs are deferred income annuities purchased with retirement funds typically held in an IRA or 401(k) that begin payments on or before age 85. The dollar limitation for premiums increases to $200,000 from $145,000 starting January 1, 2023. The law also eliminates a previous requirement that limited premiums to 25% of an individual’s retirement account balance.


Automatic enrollment and automatic plan portability

The legislation requires businesses adopting new 401(k) and 403(b) plans to automatically enroll eligible employees, starting at a contribution rate of at least 3%, starting in 2025. It also permits retirement plan service providers to offer plan sponsors automatic portability services, transferring an employee's low balance retirement accounts to a new plan when they change jobs. This makes gaining access to retirement savings more common, and taking them with you if you leave even easier!


Emergency savings

Defined contribution retirement plans would be able to add an emergency savings account that is a designated Roth account eligible to accept participant contributions in 2024. Contributions would be limited to $2,500 annually, and the first 4 withdrawals in a year would be tax- and penalty-free. This feature specifically excludes highly compensated employees.


Depending on plan rules, contributions may be eligible for an employer match. In addition to giving participants penalty-free access to funds, an emergency savings fund could encourage plan participants to save for short-term and unexpected expenses.

Student loan debt

Starting in 2024, employers will be able to "match" employee student loan payments with matching payments to a retirement account. So, in addition to paying down on student loan debt, the employee is also getting money put away for retirement through their employer!

529 Plans

529 Plans with funds remaining after the beneficiary graduates, now have a secondary landing zone that proves favorable. After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000. Rollovers cannot exceed the aggregate before the 5-year period ending on the date of the distribution. The rollover is treated as a contribution towards the annual Roth IRA contribution limit. So instead of the parents cashing in the account only to be taxed, and potentially step them up a tax bracket, the beneficiary rolls the funds into a Roth, and pays tax on the money at their rate of taxes in 15-years.


Saver's match

The act provides a matching contribution, up to $2,000, for any eligible individual who makes a qualified retirement savings contribution for a tax year, which the individual will claim as a tax credit. The match will equal 50% of the individual's contribution for the tax year but will phase out for taxpayers with modified adjusted gross income above $41,000, for married taxpayers filing jointly; $30,750, for taxpayers filing as head of household; and $20,500, for single taxpayers. Eligible individuals are anyone age 18 or older who is not a dependent or full-time student and who is not a nonresident alien.


Higher catch-up limit for older individuals

The act increases the current catch-up limit to the greater of $10,000 ($5,000 for SIMPLE plans) or 50% more than the regular catch-up amount in 2024 (2025 for SIMPLE plans) for individuals who attain ages 60, 61, 62, and 63, effective for tax years beginning after Dec. 31, 2024. The dollar amounts are indexed for inflation beginning in 2026.


The annual limit on contributions to individual retirement accounts (IRA's) is also increased for participants aged 50 and older. The “catch-up” limit for IRA's is $1,000. Unlike the catch-up amount for other plans, this amount is not subject to increases for inflation under current law. The bill would make the IRA catch-up amount adjusted annually for inflation for tax years beginning after 2023.


Finally, for tax years beginning after 2023, all catch-up contributions are subject to Roth rules, rather than only were allowed by the plan in which the individual participates.

Credit for military spouses that participate in employer defined contribution plans

The act creates a credit for small employers for each military spouse that starts participating in the employer's eligible defined contribution plan. The annual credit amount is $200 for each military spouse who participates in the employer's plan, plus the amount of related employer contributions to the plan (but capped at $300 of contributions for any individual).


A military spouse counts for purposes of the credit only in the tax year that includes the date they begin participating in the plan and the two succeeding tax years. "Military spouse" is defined as an individual who is married to a member of the uniformed services (as defined in 10 U.S.C. Section 101(a)(5)) serving on active duty. Highly compensated employees (within the meaning of Sec. 414(q)) are excluded from the definition of "military spouse."


Penalty-free emergency withdrawals

The act adds a new exception from the Sec. 72(t) 10% tax on early distributions from retirement accounts. The new exception applies to certain distributions used for emergency expenses, which are used for meeting unforeseeable or immediate financial needs relating to necessary personal or family emergencies. One distribution is allowed per year of up to $1,000. Taxpayers have the option to repay the distribution within three years. No further emergency distributions are allowed during the three-year repayment period unless repayment has been made. The exception is available for distributions made after Dec. 31, 2023.


Penalty-free retirement plan withdrawals for domestic abuse victims

The act amends Sec. 72(t) to allow domestic abuse victims to take distributions of up to $10,000 (adjusted for inflation after 2024) from a qualified retirement plan without being subject to the 10% additional tax for early withdrawals. "Domestic abuse" includes physical, psychological, sexual, emotional, or economic abuse by a spouse or domestic partner. Employees or participants can self-certify that they qualify for the exception. The provision is effective for distributions made after Dec. 31, 2023.


Penalty-free retirement plan withdrawals for individuals with terminal illness

The act amends Sec. 72(t) to allow individuals with a terminal illness to take distributions from a qualified retirement plan without being subject to the 10% additional tax for early withdrawals. Employees or participants will need a physician's certification to qualify for the exception. A terminally ill person is defined as someone who has an illness or physical condition that can reasonably be expected to result in death in 84 months or less after the date of the certification. The provision is effective for distributions made after Dec. 31, 2023.


Elimination of 10% additional tax on corrective distributions of excess contributions

The act provides that earnings attributable to excess contributions to an IRA that are returned by the due date for the taxpayer's return for the year (including extensions) are exempt from the Sec. 72(t) 10% additional tax.


Surviving spouse's election to be treated as an employee

In the case of an employee who dies before RMDs have begun under an employer-provided qualified retirement plan, and who has designated a spouse as sole beneficiary, the act allows the designated beneficiary surviving spouse to elect to be treated as if the surviving spouse were the employee for purposes of the RMD rules of Sec. 401(a)(9). The IRS will prescribe the time and manner for making the election. This provision is effective for calendar years after 2023.


De minimis incentives for participation are allowed.

Employers may offer de minimis financial incentives, such as low-dollar gift cards, to boost participation in retirement plans. The financial incentives cannot be purchased with plan assets.



National Database

Lastly, the SECURE Act 2.0 creates a national online searchable database to enable employers to locate “missing” plan participants, and plan individuals to locate retirement funds.




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