Secure Act 2.0: Boosting Retirement Readiness

The Secure 2.0 Act of 2022 expands some provisions contained in previous versions of the Act and adds some new ones. The goal is to make saving for the future easier. As with all new legislation, the Secure Act 2.0 includes many requirements and variations, so be sure to consult your financial and tax professionals.

New Age for RMDs

The Act raises the age for taking required minimum distributions (RMDs) from qualified retirement plan accounts. As of January 2023, the age for beginning withdrawals from 401(k) and similar plans is 73, increasing to age 75 in 2033. Delaying RMDs allows more time for money to remain in retirement accounts tax deferred.

Disadvantages of Later Withdrawals

RMD amounts are based on the account balance at the end of the prior year and the account owner’s life expectancy. Delaying RMDs may mean a retiree will have to take larger distributions based on a larger account balance, potentially moving the retiree into a higher tax bracket. The additional income could also increase Medicare Parts B and D premiums and subject more of a person’s Social Security benefits to taxation.

Lower Penalties

Penalties for failing to take an RMD are reduced from 50% to 25% of the amount not taken. The penalty is further reduced to 10% if the failure to take the required amount is corrected in a timely manner.

Catch-up Changes

After December 2023, catch-up contributions for plan participants ages 50 and older will be indexed to IRS cost-of-living adjustments (COLA). In 2025, catch-up limits for 401(k) participants ages 60 to 63 will increase to the greater of $10,000 or 150% of the regular catch-up amount. After 2025, the catch-up amount will be indexed for inflation.

Emergency Withdrawals

Beginning in 2025, participants can access up to $1,000 annually from their retirement savings without penalty for emergency expenses. The participant may repay the distribution within three years, but cannot take additional distributions during that time, unless the distribution has been fully repaid. Victims of a federally declared natural disaster can withdraw up to $22,000 from retirement accounts penalty free for disasters that occurred after January 25, 2021.

Automatic Enrollment

In 2025, employers with new 401(k) and 403(b) plans will be required to automatically enroll eligible new employees who can then choose to opt out of the plan.