The Secure 2.0 Act is a sweeping package of new rules and regulations that included dozens of new retirement-related provisions. From automatic enrollment in certain retirement accounts to penalty-free early withdrawals and more, investors should be aware of what’s to come.
Let’s dive in to see the new rules and what they all mean for your retirement.
What Is The Secure 2.0 Act?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2023, commonly referred to as the Secure 2.0 Act, is a law designed to substantially improve retirement savings options in the United States, including 401(k)s and 403(b)s. It builds on the SECURE Act of 2019 and was signed into law by President Joseph R. Biden on December 29, 2022, as part of the Consolidated Appropriations Act (CAA) of 2023.
Its goal is to strengthen retirement security for Americans by making changes to existing 401(k), IRA, Roth, and other retirement plan rules. The new law seeks to make it easier for people to save more money for their future while also providing tax benefits and expanded withdrawal options when needed.
Employees and employers should pay close attention to what’s rolling out over the next several years, as they will significantly impact retirement savings. While some of these provisions take effect immediately, others won’t be implemented until well into 2023 or later. Let’s take a look at some of the biggest changes investors can expect to see.
Automatic Retirement Plan Enrollment
Automatic enrollment is a feature of 401(k), and 403(b) plans that automatically allow employers to enroll eligible employees in a retirement plan. Under the SECURE 2.0 Act, all businesses with over 100 employees must offer an automatic enrollment feature by 2025 (with some exceptions). Smaller companies may also choose to implement this feature, but it’s not currently mandatory.
Employees must be automatically enrolled at a minimum of 3% of their compensation, increasing by 1% yearly until 10%. Existing 401(k) and 403(b) plans are exempt from auto-enrollment and auto-escalation under the proposed legislation. However, employers may want to consider adding these features voluntarily, as research has shown that automatic enrollment helps employees save more for retirement without thinking about it or taking any action on their part.
Important Details To Follow Before Setting Up Auto-Enroll
For employers setting up a new plan after December 29, 2022, there are some things you should know before implementing auto-enroll:
- You must provide clear disclosure documents outlining how the program works.
- You need to decide what type of contribution structure you’ll use (e.g., pre-tax or Roth).
- You have to determine when contributions will start (e.g., immediately upon hire or after a certain period).
- You need to set default investment options.
- You have to decide whether participants can change their contribution rates at any time or only during open enrollment periods each year.
It’s important for employers that are setting up a new plan to understand all the requirements associated with auto-enrollment so they can ensure compliance while helping employees save for retirement successfully over time.
Increased QLAC Amount
One of the most important changes is the increase in the amount that can be held in a Qualified Longevity Annuity Contract (QLAC).
A QLAC is an annuity contract purchased with funds from a qualified retirement plan such as an IRA or 401(k). The annuity pays out income beginning at age 85 or later and continues for life. Prior to the Secure 2.0 Act, only $125,000 could be invested in a QLAC, but now that limit has been increased to 25% of total assets up to $138,500 per person ($277,000 per couple).
This change makes it easier for investors looking for ways to ensure they have enough money saved for their golden years. Investors can save more money over time while taking advantage of the tax benefits associated with traditional retirement accounts like IRAs and 401(k)s before reaching age 85.
Investors should also know that some restrictions are associated with using the new higher contribution limits for a QLAC. Those under 70 ½ cannot use any portion of their required minimum distributions (RMDs) to fund the contract, nor will any earnings generated by those RMDs count towards the maximum allowable contribution amount either directly or indirectly through reinvestment back into their account before turning 70 ½.
Changes To Catch-Up Contribution Limits
The SECURE 2.0 Act of 2022 now increases the amount that can be contributed as a “catch-up” contribution into 401(k) plans from $6,500 per year (in 2023) up to $10,500 annually (for those aged 50 and over). The same increase applies to 403(b), 457(b), SARSEP, and SIMPLE plans. After 2025, these amounts will be indexed for inflation to keep pace with rising living costs.
In addition, beginning in 2024, the SECURE 2.0 Act rules impact how eligible workers with incomes over $145,000 (which will be adjusted for inflation) can make catch-up contributions. This means that high earners have an even better opportunity to save more money towards their retirement goals if they take advantage of this increased limit on catch-up contributions before it expires at age 65.
How To Make A Catch-Up Contribution
Making a catch-up contribution is easier than ever. Here’s how to do it:
- First, you must meet all eligibility requirements, including being at least 50 years old during any part of the calendar year when making a contribution and having earned income equal to or greater than your total annual contribution limit.
- Then, select which type of account you would like your extra funds deposited into – either an employer-sponsored plan or an individual retirement account (IRA) – then specify how much money should go into each.
- Once completed, submit your request form and any documentation your account provider requires.
New Programs to Help Employees Pay Down Student Loans
Starting in January 2024, employers will be allowed to offer Student Loan Repayment Assistance Programs (LRAPs), enabling them to contribute up to $5,250 annually towards an employee’s student loan payments without triggering taxes on either end. This means that instead of contributing to a 401(k), 403(b), or SIMPLE IRA plan, employees can contribute towards paying off their student loans and still be eligible for an employer match on those payments.
These LRAPs can be used as an incentive for potential hires who may not have otherwise considered working due to the financial burden caused by student loans. This will allow companies to access a larger pool of qualified candidates while providing added benefits for current employees seeking relief from debt obligations incurred during college years prior to joining the company.
Employers will need to set up a special Secure 2.0 account, which allows them to track employee contributions and match them accordingly. Employees then contribute money into this account through payroll deductions or other forms of payment, which the employer then matches at an agreed-upon rate set between both parties (typically 1-2%). These funds are used exclusively to pay off any existing student loan debts that the employee may have incurred during college or university studies before being hired.
New Required Minimum Distribution Rules (RMDs)
Required Minimum Distributions (RMDs) are withdrawals from certain retirement accounts that you must take each year once you reach a certain age. The amount you need to withdraw depends on your account balance and life expectancy, as determined by IRS tables.
The SECURE 2.0 Act has made several changes to the required minimum distribution (RMD) rules for retirement plans. These changes are designed to make it easier and more beneficial for individuals to save for retirement and provide additional flexibility in how they can access their savings during retirement.
Age Component
Under current law, individuals must take required minimum distributions from their traditional IRAs and other qualified accounts once they reach age 72 (or 70 ½ if born before July 1, 1949). Beginning January 1, 2023, the SECURE 2.0 Act increased this age to 73. It will increase to 75 on January 1, 2033, allowing individuals to keep their money invested longer and potentially benefit from additional growth opportunities over time.
Dollar Limit Increase
The IRS regulation’s limit on dollar amounts that can be withdrawn annually was increased from $100,000 to $200,000 with this provision. This means those over the age requirement may now withdraw up to twice as much each year without incurring any penalties or taxes associated with early withdrawals from a qualified plan such as an IRA or 401(k).
Annuities Allowed To Satisfy RMD Rules
The Secure 2.0 Act now allows purchased annuities to satisfy RMD rules, even if the annuity includes provisions that increase annual payments by less than five percent – something previously prohibited under current laws.
Additional rules and benefits include:
- Lump sums may be paid out, shortening payment periods using reasonable actuarial assumptions
- Accelerated payments over 12 months
- Return of premiums minus payments upon death
- Certain dividends are allowed under this provision effective December 29, 2022, onward
Penalty Tax Reduction For Late Payments
The SECURE 2.0 Act will also reduce the penalty tax on participants who fail to make timely distributions from 50% to 25%. If corrected in a timely manner, only 10% will be charged instead, making late withdrawals far less costly than before.
529 To Roth IRA Rollovers
The rollover option allows you to move money from your existing 529 plan into a Roth IRA account. This new option, available beginning in 2024, offers an opportunity to transfer funds from your existing 529 plan into a Roth IRA account with tax advantages and long-term savings potential. You can make annual contributions up to $ 35,000-lifetime limit as part of this process.
The Secure 2.0 Act also allows parents, grandparents, and other family members to transfer 529 college savings plans directly into Roth IRAs tax-free. This provides another avenue for funding retirement accounts while benefiting from all the advantages offered by traditional education savings vehicles, such as state tax deductions and matching grants.
It’s important to note that many people use these plans to pay tuition fees related to post-secondary schooling for children, grandchildren, nieces, nephews, or other dependents. However, they may not always realize the potential benefits of rolling excess amounts over into qualified accounts like Roth IRAs, where growth and earnings compound untaxed until withdrawn later either by themselves or a beneficiary.
529 To Roth IRA Rollover Requirements
For this rollover option to work, certain requirements must be met, including:
- The Roth IRA account must be in the name of the 529 plan beneficiary.
- They have maintained it for at least 15 years before rolling over funds from their existing 529 plans into it.
- Any annual contributions made towards this new account will have limits set within the annual contribution limit allowed by law (currently $6,000).
It’s essential also to note that if any taxes were paid on earnings or withdrawals made from your original 529 plans before transferring those funds into your newly established Roth IRA, those taxes can’t be recovered when making such transfers. However, all future earnings and withdrawals made through these accounts will not incur additional taxation since they are now considered “Roth” accounts, which don’t require taxation upon withdrawal or sale of assets.
Additionally, if one chooses not to take advantage of this rollover opportunity, any remaining balances left in the original 529 plan will remain subject to standard income tax upon withdrawal or sale of assets. Careful consideration should go into deciding whether taking advantage of this offer is the right choice given individual circumstances.
Penalty-Free Early Withdrawals
The SECURE Act 2.0 has made it easier for individuals to access retirement funds in emergencies or hardships. Under this new law, investors can take up to $1,000 per year from their retirement plan without incurring a 10% penalty for early withdrawal.
This money must be used towards “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” Investors may also make penalty-free withdrawals in domestic abuse cases under this act. It’s important to note that the money must be repaid within three years of the first withdrawal.
Under the SECURE Act 2.0, 403(b) plans now have the same rules as 401(k) plans regarding hardship withdrawals. Investors can withdraw money from:
- Elective deferrals
- Qualified nonelective contributions
- Qualified matching contributions
- Earnings on any of these contributions (including elective deferrals)
What Some Of These Changes Mean For Precious Metals IRA Holders
The SECURE 2.0 act also provides some benefits specifically tailored towards gold investors looking at using precious metals as part of their retirement portfolio strategy.
- It allows self-directed IRAs – which allow you to invest in alternative assets such as gold – to be used when taking advantage of catch-up contributions and other incentives offered through employer-sponsored plans like 401(k)s and 403(b)s.
- It eliminates restrictions on how much gold can be held in an IRA account.
- It removes penalties associated with transferring funds between different types of accounts when investing in gold through an IRA.
Start Saving For Retirement With A Gold & Silver IRA
The new rules and regulations provide more flexibility, higher contribution limits, and even some additional benefits to those who choose to invest in a self-directed IRA. Whether you already have a retirement account or are planning on opening a new account or rolling over an existing account, it’s important to stay informed about how changes to the laws may impact your savings.
If you’re interested in learning more about saving for retirement with a self-directed gold and silver IRA, we’d be happy to walk you through the process and answer any questions you have. Contact us today at (877) 646-5347 or open an account now to speak with a team member.
