8 SECURE 2.0 key provisions that may impact you

This legislation contains the SECURE 2.0 Act of 2022 (“the Act”). The Act includes several provisions that are anticipated to make it easier for individuals to save for retirement. Although not an exhaustive list, the following identifies some key provisions of the Act.

 

Key provisions:

1. Required minimum distributions (RMD) age increases

The required age for an RMD beginning date is increased for participants and spousal beneficiaries of a participant that died prior to reaching the RMD beginning date. 

New RMD ages are:

Age 73	for an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033
Age 75	for an individual who attains age 74 after December 31, 2032

 

• The increase in age allows participants to keep their savings in their retirement plan for a longer period. 
• Effective date: Calendar years after December 31, 2022 
• Applicable plans: 401(a), 401(k), 403(b), 457(b) plans and traditional IRAs

2. RMD excise tax reduction

The Internal Revenue Code currently imposes a 50% excise tax on RMD’s that are not taken in a timely manner. SECURE 2.0 reduces the excise tax from 50% to 25% (and to 10% if the correction is made in a timely manner). The reduced penalties allow participants to preserve more of their retirement income.

• Effective date: Taxable years beginning after December 29, 2022 
• Applicable plans: 401(a), 401(k), 403(b), 457(b) plans and traditional IRAs

3. Roth RMD rule change for plan distributions

Under current law, RMDs to a plan participant must consider all amounts (both non-Roth and Roth) from that participant’s account from an employer-sponsored retirement plan. SECURE 2.0 eliminates this requirement so that the designated Roth account under a plan is not subject to RMD during the participant’s lifetime. This allows participants to preserve account balances. 

• Effective date: Tax years after December 31, 2023 
• Applicable plans: 401(k), 403(b), and governmental 457(b) plans with a designated Roth feature

4. Surviving spouse election to be treated as employee (for RMDs)

If a participant dies before his or her required beginning date and designated their spouse as the sole beneficiary, then the spouse may elect to defer RMD until the year in which the spouse attains his/her RMD age. If selected the spouse’s RMD will be calculated under a potentially more favorable life expectancy table typically available only for a plan participant. 

• Effective date: Calendar years after December 31, 2023
• Applicable plans: 401(a), 401(k), 403(b) and 457(b) plans

5. Roth catch-up

If a participant’s prior year FICA wages, from the employer sponsoring the plan, exceeded $145,000, then a participant’s Age 50+ Catch-up deferrals can only be made as a Roth contribution. The $145,000 threshold is subject to IRS annual cost of living adjustments in $5,000 increments. 

• Effective date: Tax years after December 31, 2023 
• Applicable plans: 401(k), 403(b) and governmental 457(b) plans

6. 529 college savings account (“529 Account”) portability 

Permits a beneficiary under a 529 Account that has been maintained for at least 15 years to roll over up to $35,000 (lifetime cap) to a Roth IRA (subject to Roth contribution limits) owned by the beneficiary of that 529 Account. Contributions rolled over cannot exceed the aggregate amount contributed to the 529 Account (including earnings) before the five (5) year period ending on the date of the rollover. This resolves concerns about overcontributing to a 529 Account and allows individuals with funds remaining in a 529 Account to preserve favorable tax treatment without incurring a tax penalty when rolling over the funds into a Roth IRA.

• Effective date: Distributions after December 31, 2023 
• Applicable plan: Roth IRA

7. Coverage for long-term part-time workers 

Further reduces the minimum eligibility service requirements from three years (set forth in SECURE Act 1.0) to two years. This allows part-time workers to be eligible to join applicable retirement plans sooner.

• Individuals will now be eligible as of the earlier of (1) one year of service, or (2) the completion of a 24-month period consisting of two consecutive 12-month periods with 500 hours of service and attainment of age 21 by the end of the calendar year.
• This reduction does not apply to employees subject to collective bargaining or nonresident aliens and the 12- month period beginning before January 1, 2023, is not taken into account. 
• Effective date: Plan years after December 31, 2024 
• Applicable plans: ERISA 401(k) and ERISA 403(b) plans 

8. Modification of age for qualified ABLE accounts

Increases the age-based threshold at which an individual’s disability must occur for contribution eligibility to an ABLE account from age 26 to age 46. Generally, distributions from an ABLE account are tax-free if used for qualified disability expenses of the account’s designated beneficiary. 

• Effective date: Taxable years beginning after December 31, 2025 
• Applicable plan: ABLE Program