Highlights to the SECURE ACT 2.0 Spending Bill

Share this post
Highlights to the SECURE ACT 2.0 Spending Bill

Secure Act 2.0 Offers Changes to Retirement Savings and Planning

On December 23, 2022, Congress passed the Securing a Strong Retirement Act of 2022 (Secure 2.0)  It is part of the Consolidated Appropriations Act of 2023. President Biden officially signed it into law. The second Secure Act has several provisions that would benefit retirement savers and employers.

One would require employers to automatically enroll eligible workers in 401(k) plans at a rate of 3% of salary. This would increase annually until the employee is contributing 10% of their pay. Employees could opt out or select a different contribution amount. Businesses with 10 or fewer employees or are less than 3 years old would be excluded from the mandate. The plan would also make changes to how much savers can contribute if they’re near retirement. Also, when retirees need to pull money from their accounts. Individuals aged 62, 63 and 64 could make catch-up contributions of $10,000, up from $6,500.

It would also increase the starting age for required minimum distributions (RMDs) to 73 in 2022, 74 in 2029 and 75 by 2032. This is up from the current 72. On Jan. 1, 2023, the age at which owners of retirement accounts must begin taking their RMDs increased to 73 years of age. If you turn 72 in 2023, you have an extra year before you are required to take distributions from your traditional and pre-tax accounts. This is a benefit because you are not required to take any money out of those accounts, especially if you do not currently need the income. You get to keep your money invested and not generate additional taxable income.

Below are some key takeaways from the recently passed SECURE 2.0 spending bill.

Immediate Changes:

  • RMDs: Under previous tax law, mandatory retirement withdrawals from IRAs and 401(k) pls started at age 72. The new law increased the mandatory age to 73 in 2023 and 75 in 2033.
  • SIMPLE Roth IRAs: For the first time, Roth contributions are allowed in SIMPLE IRAs, which is a type of small business retirement plan.
  • Part-time hours: Part-time workers now only need to work between 500 and 999 hours for two consecutive years to be eligible for their company’s 401(k) plans, rather than the previous requirement of three consecutive years.
  • Roth IRA matching for employer plans: Employer matching contributions can now be invested into a Roth 401(k). It’s important to note that it may take some time for plan providers to make this option available and for payroll systems to update accordingly.

Future Changes:

  • 529 college savings plans: Beginning in 2024, 529 plan assets can be rolled over to a Roth IRA for the beneficiary. The rollover is subject to annual Roth contribution limits and a lifetime limit of $35,000.
  • Student loan repayments: Beginning in 2024, student loan payments will count as retirement contributions and will be eligible for employer matching.
  • Automatic enrollment in retirement plans: Starting in 2025, employers will be required to automatically enroll employees in 401(k) and 403(b) plans. Exceptions include small businesses with fewer than ten employees, churches, and governmental plans.
  • Catch-up contributions: Starting in 2025, those 60 to 63 can direct an extra $10,000 annually towards their 401(k)s (currently, it’s $7,500).

IRS adjustments for 2023:

  • Higher tax brackets- There will be a 7% increase for each income bracket for the 2023 tax year. You can see the tax brackets based on filing status.
  • Larger standard deduction- The standard deduction for single filers in 2022 was $12,950. It increases to $13,850 for 2023. Married couples filing jointly will see a rise from $25,900 in 2022 to $27,700 in 2023.
  • Increase in the estate tax exemption- The estate tax exemption increases to $12.92 million and $25.84 million for single and joint filers, respectively, up from $12.06 million and $24.12 million.
  • Higher retirement contribution limits-Annual IRA contribution limits jump to $6,500 for savers under 50, up from $6,000 for 2022, and 401k limits rise to $22,500, up from $20,500. This means $30,000/ year for savers 50 and older.
  • Higher contribution limits for FSAs and HSAs- The new limit for flexible spending accounts (“FSA”) in 2023 will be $3,050, a 7% increase from 2022. In May, the IRS released HSA contribution limits for 2023. Individual limits will increase to $3,850, up $200 from 2022. Tand he limit for families will be $7,750, up $450 from 2022.

It may be worth reviewing your retirement savings strategy considering these legislative changes. If you’d like help or want to discuss your options further, contact us info@Madonia.com or (312) 578-9300.