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Key Provisions of the Secure Act 2.0

December 24, 2022 | Posted in: Wealth Strategies

You may have heard that earlier this week, the Senate passed and the House approved a 4,000+ page, $1.7 trillion spending bill to avoid a government shutdown and fund government agencies through September 2023. The bill included the SECURE Act 2.0, which made several significant changes to retirement planning options. Here are a few of the key provisions.

SECURE Act 2.0 increases saving opportunities for those closer to retirement by:
• Increasing the RMD age to 73 as of January 1, 2023, and to 75 in 2033.
• Allowing larger “catch-up” contributions. Under current law, once you reach age 50, you can fund your 401(k) with an additional sum, indexed to inflation, to $6,500 in 2022, and $7,500 in 2023. The catch-up limit for employees aged 60 to 63 is increased to the greater of $10,000 or 1½ times the then current catch-up contribution amount, starting in 2025.
• Indexing the $1,000 IRA catch-up limit for inflation for tax years starting in 2024.
• Indexing qualified charitable distributions (QCDs) for inflation and permitting a one-time gift of $50,000 to certain charitable giving vehicles that also benefit the grantor or their spouse. Currently, individuals over 70 ½ are permitted to make QCDs up to $100,000 directly from an IRA to charity, avoiding the recognition of income on the donated amount.

SECURE Act 2.0 provides additional savings for anyone by:
• Permitting employers to make matching contributions to an employee’s 401(k) or 403(b) retirement plan, for student loan payments.
• Allowing employees to elect matching contributions in a Roth account versus pre-tax account, effective immediately.
• Requiring employers with 401(k) or 403(b) plans to automatically enroll all new, eligible employees at a 3% contribution rate that would increase by 1% annually until it reaches 10% (previously, employers had the option to add eligible new employees to retirement plans).
• Permitting a roll-over up to a lifetime limit of $35,000 from 529 college savings plan account to a Roth IRA tax and penalty free. There are certain limitations to this provision.