The SECURE 2.0 Act is a legislation that aims to strengthen the retirement system in the United States and improve financial readiness for retirement. The Act contains several provisions that could affect retirement accounts, including changes to required minimum distributions (RMDs), catch-up contributions, and emergency savings accounts.
Here are the 7 biggest proposed rule changes you need to know.
1) The age at which owners of retirement accounts must start taking RMDs will increase to 73 in 2023 and to 75 in 2033. The penalty for failing to take an RMD will decrease to 25% of the RMD amount in 2023, and to 10% if corrected in a timely manner for IRAs. Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.
2) Catch-up contributions: Starting in 2025, individuals ages 60 to 63 will be able to make catch-up contributions of up to $10,000 annually to a workplace plan, indexed to inflation. For those age 50 and older, catch-up contributions of up to $7,500 are currently allowed in 2023.
Emergency savings accounts: Defined contribution retirement plans will be able to add an emergency savings account associated with a Roth account.
3) Student debt: The Act includes provisions to help younger people continue saving for retirement while paying off student debt.
4) Account portability: The Act aims to make it easier to move retirement accounts from employer to employer.
5) Annuities: The Act allows workplace saving plans to offer annuities.
6) Early withdrawal penalty: The Act includes a provision to waive the 10% early withdrawal penalty for distributions of up to $5,000 made within a year of the birth or adoption of a child.
7) Part-time workers: The Act includes provisions to encourage employers to offer retirement plans to part-time workers.
If you are turning 72 in 2023, you may want to consider updating your withdrawal plan for your RMDs. If you choose to delay your first RMD until April 1, 2025, you will need to take two RMDs in one tax year: one by April 1, 2025, and one by December 31, 2025.