Congress passed the SECURE 2.0 Act as part of a spending bill for the end of the year. The retirement plan legislation is the expanded version of the SECURE Act of 2019 whose goal was to improve the retirement laws when it comes to savings accounts. US President Joe Biden signed the bill into law on the 29th of December 2022.
What’s Included in the SECURE 2.0 Act?
The SECURE 2.0 Act is meant to serve as an upgrade to the SECURE or Setting Every Community Up for Retirement Enhancement Act of 2019. Congress passed it on December 23 as a part of the Consolidated Appropriations Act of 2023. The president signed this legislation into law after just six days.
This expanded legislation has made some substantial changes to qualified retirement plans. One of these changes is the age increase in 2023 from 72 to 73, and 75 by the year 2023 for the RMDs or required minimum distributions. RMDs in 2022 as the minimum cash amount that a holder of a retirement plan account is mandated to withdraw per year before reaching 72 years old.
The SECURE 2.0 Act also contains provisions for improving the retirement savings accounts in the United States, which get rid of RMDs for Roth accounts in 403bs and 401ks, together with other provisions starting in 2024.
It was in late March 2022 when the House passed its version of the SECURE 2.0 Act called the EARN or Enhancing American Retirement Now Act.
Significant Changes in SECURE 2.0 Act
The SECURE 2.0 Act is expected to enact to low the following significant changes:
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- The age for RMDs will go up to 73 years old for those who will turn 72 in 2023, and 75 by 2033.
- Many of the new 403bs and 401ks established after passing the SECURE 2.0 Act as a law will be obliged to automatically enroll employees and escalate the contributions after the 31st of December 2024.
- Retirement savers with low income could be eligible for a 50% tax credit of up to $2,000 after the 31st of December 2026. The amount must be deposited into an IRA or a retirement plan of the individual.
- RMDs are removed from Roth accounts in 403bs and 401ks for tax years after the 31st of December 2023.
- The catch-up distribution limits will increase for those people who are 60 and 63 years old after the 31st of December 2024 to the great two. It can be either 150% or $10,000 of the usual catch-up amount for people aged 50 and above.
- Penalties for early withdrawal will be removed for hardship distributions that terminally ill employees make as well as those who live in declared disaster areas to a maximum of $22,000.
- An online database will be developed by the Department of Labor within two years after the SECURE 2.0 Act has become law for employers and employees alike to look for orphaned retirements and match these to current plans.