By Danny Lynch, Staff Writer
Photo Courtesy of Pixabay.com
In 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act. Known as the SECURE Act, its goal was to entice people to enhance their retirement savings. In March of 2022, the bill known as The Securing a Strong Retirement Act of 2021 (“SECURE 2.0 Act”) was passed by the House of Representatives. Towards the end of 2022, President Biden signed the act into law.[1] The SECURE 2.0 Act has made major changes to retirement plans.[2] This is the final statute of a compilation of several bills: 1) Securing a Strong Retirement Act was passed in 2022; 2) the Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg Act (The “RISE & SHINE” act); 3) the Enhancing American Retirement Now Act.[3] Some of these changes started in 2023, and some are yet to go into effect. Largely focused on employer-provided retirement plans, the original SECURE Act has been amended to fix some of the unintended consequences and to enhance it.[4]
Now in effect, the SECURE 2.0 Act has begun to affect people everywhere. First, Section 105 of the SECURE 2.0 Act increases the age at which you must begin taking mandatory distributions from 72 to 73.[5] This will have many implications on people in the United States. In five years, that age increases again from 73 to 74.[6] In 2033, it increases to 75.[7] Section 114 provides a change for part-time workers.[8] The prior legislation required 3 consecutive years of service with a minimum of 500 hours of service to qualify for retirement benefits.[9] Now, the SECURE 2.0 Act has reduced that from three consecutive years down to two years.[10] An alternate of one year of service with 1,000 hours remains in law.[11] With these changes in the SECURE 2.0 Act, it is now easier for part-time workers to receive retirement benefits. Additionally, to further this goal of helping people retire, Section 201 of the SECURE 2.0 Act removes certain barriers that make it easier for people to choose life annuities under qualified plans or IRA’s.[12] Section 302 of the SECURE 2.0 Act applies to the excise tax that gets applied on qualified retirement plans for the failure to make the minimum required distributions into the plan.[13] The excise tax has been reduced from 50% to 25%, however, if the failure to take required minimum distribution is corrected in a timely manner, that penalty is reduced to 10%.[14] This adjustment helps further the goal of incentivizing people to correct any errors while attempting to retire. An interesting change that has gone into effect is the database that has been created to help employees who transition between jobs to keep their retirement plans. Section 306 implements a retirement “lost and found” database to help employers find their former employees to whom they owe benefits.[15]
These changes also extend to student loan payments. Under Section 110 of the SECURE 2.0 Act, qualified student loan payments are eligible for matching contributions from employers with a 401(k) plan, 403(b) plan, or a SIMPLE IRA.[16]
Finally, Section 604 of the SECURE 2.0 Act allows employers to have the option to match contributions on Roth IRAs for 401(k)’s, 403(b)’s, or governmental 457(b) plans that allow employers to avoid tax contributions. Further, catch-up contributions are now subjected to Roth IRA tax treatment instead of the plan sponsor.[17] The current increase is $1,000 for individuals who are 50 years of age or older. Employees who reach the age of 62, 63, and 64 but not 65, are subject to increases in their catch-up contributions.[18]
Overall, the SECURE 2.0 Act has implemented changes to the original act passed in 2019. These changes will help thousands of employees around the country, as well as give assistance to students. The downsides of increasing age minimums for mandatory distributions may be alleviated by giving employees new benefits through this legislation and their employers. Current employees now have the ability to adjust their contributions to align with the new legislation. As time goes on, it will be interesting to see how this newly enacted legislation takes effect.
[2] https://www.kiplinger.com/
[3] https://www.ajg.com/us/-/media/files/gallagher/us/2023/president-biden-signs-the-secure-2-act-into-law.pdf
[4] https://lynchlaw-group.com/
[5] https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions faqs#:~:text=Beginning%20in%202023%2C%20the%20SECURE,1%2C%202025%2C%20for%202024.
[6] Id.
[7] https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf
[8] Id.
[9] Id.
[10] Id.
[11] Id.
[12] Id.
[13] https://www.finance.senate.gov/
[14] Id.
[15] Id.
[16] Id.
[17] Id.
[18] Id.
