Unlocking Retirement Security: A Look at the SECURE 2.0 Act of 2022

In December 2022, the SECURE 2.0 Act of 2022 passed, making significant updates and changes to the SECURE Act of 2019 and providing retirement access and security for Americans. This legislation affects employer-sponsored defined contribution plans, such as profit-sharing plans, 401(k) plans, 403(b) plans and stock bonus plans.^[0]

One of the major changes is the automatic enrollment of new, eligible employees in 401(k) or 403(b) plans at a 3% contribution rate, increasing 1% annually until it reaches at least 10% (but no more than 15%).^[1] Employers are required to implement this change to their plans beginning in 2025.^[2]

In addition, taxpayers between ages 60 and 63 will be able to make higher “catch-up contributions” to their retirement plans beginning in 2025.^[3] The limit on these catch-up contributions will be the greater of $10,000 or 150% of the 2024 catch-up amount, and will be adjusted for inflation each year.^[1] However, if the prior year’s wages for the employee exceed $145,000, catch-up contributions must be made to a Roth account in after-tax dollars.^[4]

Beginning in 2024, employers will also be able to offer emergency savings accounts linked to their 401(k) retirement accounts, allowing employees to set aside up to 3 percent of their salaries, up to $2,500 in these Roth-like accounts.^[5] These funds may be accessed without incurring the 10 percent penalty for early withdrawals from retirement accounts and won’t have to be taxed.^[5]

The minimum age to begin taking required distributions from traditional IRAs and retirement accounts will increase from the current 72 to 73 in 2023, and then to 75 in 2033.^[6] This gives investors more time to grow their nest egg before taxable withdrawals must begin, and the penalty for not taking some or all of one’s required minimum distribution will drop from 50 percent to between 10 and 25 percent.^[6]

Finally, beneficiaries of 529 plans that have been in place for 15 years or more can transfer assets from the 529 plan to a Roth IRA.^{[7] [4]}

The SECURE 2.0 Act of 2022 is one of the most significant reforms to retirement law in recent history.

0. “SECURE 2.0 Act Brings Slate of Changes to Employer-Sponsored Retirement Plans” Lexology, 31 Jan. 2023, https://www.lexology.com/library/detail.aspx?g=6136e5a4-00e6-4990-8e10-6955adcb2686

1. “SECURE 2.0 changes the retirement-plan landscape – Boston Business Journal” Boston Business Journal, 1 Feb. 2023, https://www.bizjournals.com/boston/news/2023/02/01/secure-2-0-changes-the-retirement-plan-landscape.html

2. “SECURE 2.0 to expand auto enrollment” Pensions & Investments, 30 Jan. 2023, https://www.pionline.com/washington/secure-20-expand-auto-enrollment

3. “SECURE 2.0: Changes to TSP Ahead, Some Requiring Policy Decisions” FEDweek, 1 Feb. 2023, https://www.fedweek.com/retirement-financial-planning/changes-to-tsp-ahead-some-will-require-policy-decisions/

4. “PERSONAL FINANCE: Enhancing your retirement plan through the SECURE 2.0 Act [Column]” The Mercury, 5 Feb. 2023, https://www.pottsmerc.com/2023/02/05/personal-finance-enhancing-your-retirement-plan-through-the-secure-2-0-act-column/

5. “Money Talk: New 401k Rules – Texas Metro News” Texas Metro News, 1 Feb. 2023, https://texasmetronews.com/money-talk-new-401k-rules/

6. “The New Retirement-Savings Landscape” outsmartmagazine.com, 1 Feb. 2023, https://www.outsmartmagazine.com/2023/02/the-new-retirement-savings-landscape/

7. “What Does the Secure 2.0 Act Mean for Retirement Planning? -” ColoradoBiz Magazine, 3 Feb. 2023, https://www.cobizmag.com/what-does-the-secure-2-0-act-mean-for-retirement-planning/