The 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act revised existing rules around retirement saving. In December of 2022, Congress passed, and President Biden signed into law, a follow-up package–the SECURE 2.0 Act, which focuses on legislation that can help strengthen the retirement system and improve retirement-savings opportunities.
Some of the changes take effect in 2023, such as:
• A higher RMD starting age
• Lower penalties for insufficient RMD-related withdrawals
• Several new exceptions to the early-withdrawal penalty
• Some new Roth instruments
Other changes take effect in 2024 and beyond, such as:
• Exemption of Roth employer-based plans from lifetime RMDs
• Emergency savings tools within 401(k) plans
• 529 plan rollovers to Roths
• More generous catch-up contributions
• Automatic enrollment of employees in 401(k) plans
• A new tax credit mechanism for low-income workers
The following details 9 key benefits of SECURE 2.0.
1 – RMD Starting Age
The concept behind retirement accounts such as 401(k)s, 403(b)s, and IRAs is to accumulate savings that will be used during a retiree’s lifetime–not as a way to transfer wealth to future generations. The IRS also wants access to the tax revenues held in tax-advantaged accounts, hence the requirement for account holders to start withdrawing money at a certain age. Mandatory distributions, called Required Minimum Distributions (RMDs), are calculated as a percentage of the balance in the retirement account.
The starting age to withdraw RMDs was 70½ for many years, but was raised to age 72 by the SECURE Act of 2019. As of January 1, 2023, SECURE 2.0 raises the RMD starting age to 73 for those reaching 72 after 2022, followed by an increase to age 75 in 2033. Those currently subject to RMDs under earlier rules must continue to follow their existing RMD schedule. (Click Here to Read More)