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How the Secure Act 2.0 May Affect Your Retirement

  • by CWA
  • •    February 10, 2023
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Near-or-far from retirement, this law impacts you.

The Secure Act 2.0 builds on earlier legislation that altered the rules regarding how to save and withdraw money from retirement accounts. And while the Act has dozens of new provisions, CPA Keith Klein says in summary, it delivers good news.  

“The revised law allows taxpayers more flexibility with their retirement account savings,” Keith says. “Not only for those nearing retirement, but the new provisions also offer investors at each life stage essentially more time to grow their accounts in tax-advantageous saving environments.”  

Depending on where you are in your financial lifecycle, this law may impact your plan in different ways.  

For example, for those nearing retirement, the biggest change to note is the age in which account owners must withdraw required minimum distributions (RMDs). As of Jan. 1, 2023, the RMD age increased one year to 73. It will increase again to 75 in 2033.  

More good news, in 2024, RMDs will no longer be required from Roth IRA accounts in employer retirement plans.  This is important for those who don’t need their funds, as these changes allow money to grow in a tax-deferred environment for longer.  

For people who are still years away from retirement, the Secure Act 2.0 also offers tax-advantaged benefits. The changes are meant to help younger people continue saving while paying off student debt, to make it easier to move accounts from employer to employer, and to enable people to save for emergencies within retirement accounts.

“All of this is 90% good news,” Keith says. “The one frustrating part for business owners could be the administrative burden on employers that offer 401(k) profit sharing plans. Be sure that you are communicating with your pension plan administrator about the new provisions so you will ready when most of them go into effect in 2024.” 

The table below offers a clear comparison of the new law versus the old law and what considerations the updates could have on your savings plan. 

For CWA clients, these strategies will be considered and integrated into the financial plan as needed. For others, this is a great tool to use as you map out your retirement planning in 2023, 2024 and beyond.  

NEW LAW  

OLD LAW 

EFFECTIVE DATE 

CONSIDERATIONS 

RMD Age Delay – RMD age increases to 73 in 2023 and 75 in 2033. 

 

 RMD’s begin at age 72 

1/1/2023 

Allows you to leave money in the tax-deferred environment for longer, allowing for more tax deferred growth of your money. 

In 2024, RMDs will no longer be required from Roth accounts in employer retirement plans. This is consistent with how Roth IRAs are currently treated.  

Currently RMDs are required for Roth contributions in employer sponsored plans. 

2024 

Allows you to keep your Roth money inside an employer retirement plan instead of having to roll it out to a Roth IRA to avoid RMDs. Leaving the money in Roth for longer allows more tax-free growth.  

RMD Penalty 

Decreases to 25% of RMD amount (10% if corrected in a timely manner). 

Currently 50% 

2023 

The reduction of penalty is helpful for clients that forget to take their RMDs, but it is still best to work with a CPA  to ensure you are taking the correct amount of RMDs. 

Post-Death Option for Surviving Spouse Beneficiaries: 

 

RMDs for the surviving spouse would be delayed until the deceased spouse’s RMD age (if younger). 

Once the RMDs begin they will be smaller since they will be calculated using the Uniform Lifetime Table as opposed to the Single Lifetime table.  

 

Current options for a surviving spouse: 

 

Rolling the decedent’s IRA into their own 

Electing to treat the decedent’s IRA as their own 

Remaining a beneficiary of the decedent’s IRA 

2024 

Overall, this change provides clients with flexibility in delaying RMDs to allow for more tax-deferred growth. 

New Emergency Withdrawal   

For anyone experiencing “unforeseeable or immediate financial needs for emergency expenses,” account owners can withdraw up to $1,000 per calendar year. 

Not Applicable 

2024 

Certain restrictions apply. Prior distributions must be repaid, regular deferrals or employee contributions total at least the amount of the distribution and can’t have had an emergency withdrawal within the last three years. 

Linked Emergency Savings   

Defined contribution retirement plans will be able to add an emergency savings account associated with a retirement account. The maximum contribution is $2,500 (or lower if employer decides to adopt a lower amount) and are considered Roth contributions. This type of account is only available for non-highly compensated employees (earning less than $135,000 and not in the top 20% of compensation at the employer). The withdrawals would be exempt from tax and penalty-free. Custodians cannot impose fees on the first four distributions per year on these accounts. 

Not Applicable 

2024 

There are still many questions on exactly how these accounts will work. We will wait for further IRS regulations to answer all those questions. These contributions are considered part of the employee deferral limit and thus are subject to employer matching contributions. Employers can also auto-enroll employees into this with a maximum contribution percentage of 3%. 

Qualified Long-Term Care Distributions 

Retirement account owners can take a penalty-free distribution for qualified care up to the lesser of 10% of their vested balance or $2,500 (adjusted for inflation annually). 

Not Applicable 

2026 

Some states are starting to require this insurance and you must pay an additional tax through payroll if you don’t have proof of your own policy. There are restrictions surrounding the distribution. Consult with your insurance provider.   

Catch-up Contribution Change 

 

Catch-up contributions will not be indexed annually for inflation. 

 

If you are age 60-63, you will be able to make catch-up contributions of $10,000 or 150% of the regular contribution amount to your retirement plan.   

 

Note that if you made more than $145,000 in the previous year, all catch-up contributions MUST be Roth. 

Historically, catch-ups have not been indexed for inflation.  

1/1/2024 

Clients will need to be sure that their 401(k) plans allow for Roth deferrals (otherwise catch-up is disallowed for all participants). 

Employer Matching Contributions  

Can be pre-tax or Roth on vested contributions. 

 

Historically, plans have only allowed these to be treated as pre-tax. 

2023 

Roth matching contributions are included in employees’ income and are not subject to vesting. We expect further guidance from the IRS on how this will be administered and how employees will withhold their portion of tax due on their Roth employer contribution. 

Automatic Enrollment  

Businesses adopting a new 401(k) plan (and 403(b)) to automatically enroll eligible employees with a minimum contribution rate of 3%.  Employees can opt out. This law also adds that long-term, part-time employees are also eligible to enter the 401(k) plan. Employees fall under this category if they have worked two consecutive years. 

 

*Note that new businesses that are less than three years old are exempt, as well as small businesses with 10 or fewer workers* 

No automatic enrollment for most states (a few states already require this) 

 

 

Original Secure Act considered a person a long term, part-time employee after three years starting in 2024.

2025   

 

 

 

 

 

 

 

 

Client may be exempt if their business is less than three years old or if they have 10 or fewer employees. 

Starting in 2024, part-time employees are eligible for automatic enrollment after 2 years (compared to 3 years starting in 2024).

Student Loan Repayment  

Employees can treat student loan payments as deferrals that would be eligible for an employer match. 

N/A 

2024 

Employers would need to amend their plan documents. Vesting and matching schedules must be the same as if these funds were employee salary deferrals. 

529 Plans  

After 15 years, 529 plans can be rolled over to a Roth IRA for the beneficiary. Money contributed within five years of conversion are ineligible to be rolled into the Roth. This would be subject to annual Roth IRA maximums with a lifetime maximum of $35,000.  Rollover is treated as making a Roth IRA contribution for the year. 

N/A 

2024 

Start the 529 plan early enough to meet the 15-year deadline.   

Starter 401(k)   

New plan type requiring auto-enrollment (unless the employee opts out) that only allows for deferrals (no employer match). Deferrals are limited to the IRA maximum for the year. 

N/A 

2024 

There are still many questions on exactly how these accounts will work. We will wait for further IRS regulations to answer all those questions. 

Simple IRAs and SEP IRAs   Now allow for Roth contributions.  Must make an IRS approved election to do so. 

Currently, only pre-tax contributions allowed 

2023 

Presume the IRS will issue further guidance on how to make this election. 

Lost 401(k) Accounts  

Secure Act 2.0 will enable the creation of a database to help people find retirement benefits from previous jobs through the Department of Labor. 

N/A 

2025 

This will help people locate old accounts. Once located, the accounts can likely be rolled into an IRA.  

Retirement Plan Startup Credits 

 

Employers with up to 50 employees will now receive a 100% tax credit for plan start-up costs up to a maximum of $15,000 over three years ($5,000 per year).   

 

Also, for employers with up to 50 employees, there is tax credit for employer contributions. The credit covers 100% of employer contribution for the first two years after plan creation, 75% in Year 3, 50% in Year 4, and 25% in Year 5, before falling to zero in Year 6. The annual maximum for this credit is $1,000 per participant. This credit will phase out for practices with between 51-100 employees. 

50% limit on start-up credit 

 

 

2023 

This makes starting a new 401(k) plan for a practice close to free for the first two years. Only employees that receive an employer contribution more than $1,000 will not be credited back to the employer.   

Although the majority of these changes go into effect in 2024, your CWA advisor will be working with you this year to lay the groundwork on how this will impact both you and your business.  

If you are not confident that your current plan is integrating this new law and other tax-advantageous savings strategies, reach out to our team for a complimentary consultation today.  

Contact a CWA advisor at cainwatters.com/contact or email us at info@cainwatters.com.

Cain Watters is a Registered Investment Advisor.  Cain Watters only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.  Request Form ADV Part 2A for a complete description of Cain Watters investment advisory services. Diversification does not ensure a profit and may not protect against loss in declining markets.  Past performance is not an indicator of future results. 

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