What SECURE 2.0 means to you

Significant new opportunities for retirement investors

The SECURE 2.0 Act of 2022 was signed into law on December 29, 2022. It is the culmination of a multi-year, bipartisan effort to address the retirement savings gap and introduces several significant changes for those saving for retirement. Below are the Act’s provisions that most directly impact retirement investors.

Required minimum distributions

Beginning in 2023, the age for required minimum distributions increases to 73 and will increase to 75 in 2033. Additionally, the penalty for failure to take required minimum distributions will decrease from 50% to 25% and will decrease to 10% if the failure is corrected timely. The Act also eliminates required minimum distributions from Roth 401(k) plan accounts effective January 1, 2024.

Increased catch-up contributions

For participants who have reached ages 60, 61, 62, and 63, age-based catch-up limits will increase to the greater of $10,000 or 50% more than the regular age 50 catch-up amount in 2025 (as indexed for inflation).

Hardship withdrawals for natural disasters

Effective for events occurring on or after January 26, 2021, participants can withdraw up to $22,000 to pay for expenses related to a natural disaster, which would be taxed as gross income over three years without additional penalty. Survivors of domestic abuse could also withdraw the lesser of $10,000 or 50% of their retirement account without penalty. Beginning in 2023, participants may self-certify that they had a qualified event that constitutes the need for a hardship withdrawal.

529 rollovers to Roth IRAs

Beginning in 2024, beneficiaries of 529 college savings accounts that have been in place for at least 15 years are permitted tax and penalty-free rollovers to Roth IRA. The transfer is subject to the beneficiary’s annual contribution limit as well as a lifetime maximum of $35,000. Contributions or earnings from the past five years can’t be rolled over, and the Roth IRA accepting the funds must be in the same name as the 529 plan beneficiary.

Early distributions for the terminally ill

Effective immediately, early distributions to terminally ill individuals will be exempt from the additional 10% tax.

Putting SECURE 2.0 to work for you

The SECURE 2.0 Act provides retirement investors with many new opportunities to help them realize a healthy financial future. Scarborough can help you evaluate these opportunities and determine which may be most advantageous to your personal situation.

For more information on the SECURE Act 2.0 visit:
https://www.help.senate.gov/imo/media/doc/secure_20sectionbysection.pdf