What You Need to Know About SECURE 2.0

SECURE 2.0 brings several advancements to the retirement industry, providing more opportunities and benefits for Americans to utilize retirement savings. 

There are a total of 10 plan provisions that the passing of SECURE 2.0 will bring. Below is a summary of some of the most broadly applicable existing plan provisions that have been refined by congress and are present in SECURE 2.0.

• Increase in RMD Ages – Effective January 1, 2023 
• The RMD age will increase from 72 to 73 where it will stay for a decade before jumping to 75 in 2033.
• Starting 2023, the current excise tax penalty for not taking an RMD will decrease from 50% to 25%. The penalty drops down to 10% if the necessary RMD is taken by the end of the second year following the year it was due. 

• Mandatory Automatic Enrollment – Effective after December 31, 2024
• New 401(k) and 403(b) plans are required to automatically enroll employees when eligible. Automatic deferrals start at between 3% and 10% of compensation, increasing by 1% each year, to a maximum of at least 10%, but no more than 15% of compensation.
• The exception: Small businesses with 10 or fewer employees, new businesses that have been operating for less than three years and church plans are not required to implement automatic enrollment. 

• Long-term, Part-time Worker Qualifications – Plan year beginning after December 31, 2024.
• Currently, part-time employees with at least 1,000 hours of service in a 12-month period or 500 service hours in a three-consecutive-year period must be eligible for their employer’s qualified retirement plan. SECURE 2.0 reduces the three-year rule to two years.

• Catch-up Limits Increased – Effective for tax years after 2024
  • Currently, for those aged 50 and older the catch-up contribution is capped at $7,500 for most retirement plans. SECURE 2.0 provides a second contribution increase of $10,000 ($5,000 for SIMPLE Plans, $1,000 for IRAs) for those aged 62 to 64.