On December 29, 2022, President Joe Biden signed the SECURE Act 2.0 into law. The legislation includes many changes affecting how Americans can save for retirement. Through tax credits, increases in retirement savings limits and delayed distribution requirements, it benefits both individuals who save for retirement and employers offering retirement plans.
Delayed Required Minimum Distributions (RMDs). The RMD age increases to age 73 in 2023 and 75 in 2033. If you turned 72 in 2022 or earlier, you will need to continue taking your RMDs as scheduled.
Beginning in 2024, Roth accounts in employer-sponsored plans are exempt from the RMD requirement while the participant is alive.
Decrease in Penalties for Missed RMDs. The excise tax imposed on individuals for failing to take an RMD decreases from 50% to 25%. For those who take the missed RMD and submit a corrected tax return in a timely manner, the penalty is 10%.
Increase in Catch-up Contribution Limits. Beginning in 2025, catch-up contribution limits for employer-sponsored retirement plans can increase up to $10,000/year for individuals between ages 60 and 63. These catch-up contribution limits will be indexed to inflation starting in 2025.
Catch-up contribution limits for IRAs will continue under the same rules as before, but starting in 2023, will be indexed to inflation.
Roth Elections for Matching Contributions. Employees participating in employer retirement plans now have the option of receiving their employer match in a Roth account. As with all Roth accounts, the match amount is deposited after tax.
Automatic Enrollment in Employer Retirement Plans. Beginning in 2025, employers with new 401(k) and 403(b) plans are required to automatically enroll new employees at a contribution rate of between 3% and 10% of the employee’s salary. The law also contains an automatic escalation of 1 percentage point per year up to at least 10% of the employee’s salary, but not more than 15%.
Enhanced Tax Credits for Small Businesses. Small businesses employing up to 50 people can take advantage of expanded tax credits, including:
An increase in the existing tax credit to 100% (from 50%) of retirement plan start-up costs, capped at $5,000/year for the first three years.
Expanded eligibility to receive tax credits for plan start-up costs.
New tax credits based on a percentage of employer contributions, up to $1,000 per employee.
The SECURE Act 2.0 of 2022 may impact your retirement situation, your beneficiaries and your overall estate plan. The new law contains lots of detail, including several exceptions, so we encourage you to consult your Howland Capital adviser for more specifics and to discuss your retirement and estate planning needs.