In late 2022, a bill called SECURE 2.0 was signed into law. There’s nothing revolutionary in the law; it’s more of a kitchen sink of various adjustments and tweaks to retirement plan and IRA rules. Some changes are important and relevant for Telarray investors, so we’ll highlight some likely to be the most meaningful to you below:
Delayed Age for Required Minimum Distributions (RMDs): SECURE 2.0 increases the required minimum distribution age to 73 starting on January 1, 2023, and increases the age further to 75 starting on January 1, 2033. This is meaningful because it allows the option to defer taxes to later in life.
No More RMDs for Roth 401(k)s: Previously, all 401(k) plans required RMDs (including Roth). This change is a fix to an oversight, as typically Roth accounts don’t have RMDs.
Leniency for RMD Mistakes: RMD mistakes are extremely costly, and now only slightly less so. This law reduces the penalty for a missed RMD from 50% to 25%, and if it’s corrected quickly and proactively, then the penalty might be only 10%.
529 to Roth IRA Transfer: Effective in 2024, if you have an unused balance in a 529 plan, you can transfer those funds to your child’s Roth IRA tax-free. The most you can transfer is $35,000 over a lifetime. Keep in mind that these transfers reduce the amount of your child’s regular contributions, and they must be eligible to make contributions to a Roth IRA (i.e., have earned income, etc.). The 529 plan must have been maintained for at least 15 years, and the funds eligible for transfer must have been in the 529 plan for 5+ years.
New Future Limit for Qualified Charitable Distributions (QCDs): For years, the maximum annual QCD amount was limited to $100,000. Beginning in 2024, the QCD limit will be linked to inflation.
Mandatory 401(k) Enrollment: Requires new 401(k) and 403(b) plans started after 2024 to automatically enroll participants in the plan with at least 3% but not more than 10% contribution, with automatic increases of 1% until contributions reach 10% but not more than 15% of income.
New Catch-Up Contribution: Increases the catch-up contribution to the greater of $10,000 or 50% more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62 and 63. The increased amounts are indexed for inflation after 2025. New limits are effective for taxable years beginning in 2025.
Matching Student Loan Payments: Allows employees to receive matching contributions by reason of repaying their student loans rather than contributing to retirement plans. Effective for contributions made for plan years beginning after December 31, 2023.
Retirement Savings Lost and Found: Creates a national online searchable lost and found database for retirement plans at the Department of Labor (DOL), allowing participants to search for the contact information of their plan administrator. Directs the creation of the database no later than two years after the date of enactment of the CAA.
Requires Catch-Up Contributions to Be Roth: The cost of SECURE 2.0 will be offset by requiring that catch-up contributions be designated Roth contributions. This provision will apply to eligible participants whose wages for the preceding calendar year exceed $145,000. Effective for taxable years beginning after December 31, 2023.
There are many more changes in the law, but these are the ones most likely to be relevant to you. As always, your Telarray advisor is standing by to assist with these topics or any other questions you may have on the path to your secure financial future.
