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SECURE 2.0 Act

SECURE 2.0 Overview

The SECURE 2.0 Act of 2022 is now law. The legislation provides changes intended to help strengthen America’s retirement system. The law builds on earlier legislation that increased the age at which retirees must take required minimum distributions (RMDs) and allowed workplace savings plans to offer more choices. The law is aimed at improving retirement savings plans to offer more choices, through both employer plans and IRAs. While SECURE 2.0 contains dozens of provisions, the highlights include increasing the age at which retirees must begin taking RMDs from IRA and 401k accounts, and increasing the size of catch-up contributions for older workers with workplace plans. Additional changes are meant to help younger people continue saving while paying off student debt, make it easier to move accounts from employer to employer, and to enable people to save for emergencies within retirement accounts.

2023 Impact

The SECURE 2.0 Act has over 90 changes to help retirement savers and to urge more employers to offer retirement plans. Many of the changes begin after 2023, but some important changes go into effect this year:

  • Increasing the age for initial required minimum distributions to 73 from 72. This applies to account owners who turn 72 after 2022. If you turned 72 in 2022, you must take your first RMD by April 1. The RMD beginning age rises to 75 in 2033.
  • Lowering the excise tax for owners who fail to take RMDs to 25% from 50%. It goes down to 10% if the failure is corrected in a timely manner.
  • Indexing to inflation the $100,000 cap for qualified charitable distributions from IRAs and allowing a one-time QCD of up to $50,000 through split-interest entities.
  • Enhancing tax credits for small firms that offer retirement plans.
  • Allowing employers to offer low-dollar gift cards or other financial incentives to encourage worker retirement plan contributions.
  • Adding exceptions to the 10% additional tax for payouts taken before age 59 1/2.
  • Easing the adverse tax consequences of IRAs involved in prohibited transactions.
  • Allowing SIMPLE IRAs and SEPs to accept Roth contributions. Giving plan participants in 401(k)s, 403(b)s and governmental 457(b)s the option of having Roth-based employer matches.

IRA Changes

  • The contribution limit for SIMPLE IRAs is $15,500, plus $3,500 for people age 50 and up.
  • The 2023 contribution cap for traditional IRAs and Roth IRAs increases to $6,500, plus $1,000 as an additional catch-up contribution for individuals 50 and older.
  • The income ceilings on Roth IRA contributions phase out at AGIs of $218,000 for couples, $138,000 for single, and $153,000 for head of household.
  • Deduction phaseouts for traditional IRAs start at higher levels, from AGIs of $116,000 to $136,000 for couples and $73,000 to $83,000 for singles and if only one spouse is covered by a plan.
  • Phaseout for deducting a contribution for the uncovered spouse starts at $218,000 of AGI and ends at $228,000.

Retirement Plan Changes

Catch-Up Contributions

Under current law, catch-up contributions to a qualified retirement plan can be made on a pre-tax or Roth basis (if permitted by the plan). The new law provides all catch-up contributions to qualified retirement plans are subject to Roth tax treatment, effective for taxable years beginning after December 31, 2023. An exception is provided for employees with compensation of less than $145,000.

Optional Employer Match

Under current law, plan sponsors are not permitted to provide employer matching contributions on a Roth basis. New law allows defined contribution plans to provide participants with the option of receiving matching contributions on a Roth basis effective beginning in 2023. This means the employer contributions are taxable to the employee when made.

Cost of Living Adjustment (COLA)

Many key dollar limits on retirement plans, IRAs, and HSAs are higher in 2023 as a result of 2022 inflation. Listed below are the compared limits:

COLA Limit

Description

2023 (new)

2022 (prior)

402(g) Limit

The maximum amount of pretax and Roth employee deferrals that can be contributed to the plan.

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