4 key changes from the SECURE 2.0 Act

4 key changes from the SECURE 2.0 Act

May 10, 2023

There are a lot of provisions in the recent SECURE 2.0 Act that employees and plan participants should be aware of. Here are some of the key changes that can impact your retirement and savings in 2023 and the years ahead.

1. Rollover 529 Funds to Roth IRAs:

Starting in 2024, beneficiaries of 529 college savings accounts are permitted tax and penalty free rollovers of up to $35,000 over their lifetime from 529 accounts to ROTH IRAs under certain conditions. This is only available if you have maintained a 529 or similar prepaid tuition plan for 15 years or longer. And these transfers can’t be larger than any regular contributions made to a traditional or Roth IRA for the year.

2. Changes to the Age 72 Required Minimum Distribution:

The provision waives the current requirement of withdrawing funds from retirement accounts starting at age 72. This would provide an opportunity for individuals to continue to invest funds into their retirement accounts. In 2023, the age you are required to start taking withdrawals from a retirement account has changed to age 73, and will go up to age 75 by 2032. The penalty for failing to take these mandatory withdrawals is also dropping from 50% to 25% of the amount that should have been withdrawn and decreased even further to 10% if the failure is corrected timely.

3. Increase in Penalty-Free IRA Withdrawals:

The SECURE 2.0 Act also includes a provision that will allow penalty-free withdrawals from IRAs for certain first-time homebuyers and further allows penalty-free withdrawals for individuals dealing with certain types of hardships. Starting in 2024, the additional 10% tax applied to early distributions is waived for unforeseeable personal or family emergency expenses. One distribution of up to $1,000 per year with the option to repay within 3 years. And you can’t take any more emergency withdrawals during the repayment period.

4. Larger Catch-Up Contributions:

The SECURE Act 2.0 will help individuals over 50 with their catch-up contributions. Currently, anyone aged 50 or older can make an extra ‘catch-up’ contribution into their retirement account which allows you to deposit more than the usual maximum allowed. The IRA catch-up limit for those age 50 and older is inflation indexed after 12/31/23. Starting in 2024, the new provision increases the catch-up contribution limit for all retirement plan participants aged 60-63 from to greater of $10,000 or 150% of regular catchup limit for years in which the participant would attain age 60 through 63 ($5,000 or 150% of 2025 limit for SIMPLE plans).

Finally, the SECURE Act 2.0 will expand on the previous version of the Act, which eliminated the maximum age for traditional IRA contributions. It will also exempt certain part-time workers f rom certain eligibility requirements for certain retirement plans, making it easier for part-time workers to take advantage of retirement savings.

These changes are all aimed at making retirement savings more accessible and achievable for Americans of all ages and income levels, regardless of their employment status. The SECURE Act 2.0 will help to ensure a secure financial future for generations to come.

CONTACT a M3 Financial Professional for more information!