SECURE 2.0: Comprehensive Retirement Reforms for Employers & Employees
In December 2022, the SECURE 2.0 Act of 2022 was passed, a package of retirement provisions providing comprehensive updates and changes to the SECURE Act of 2019. This landmark legislation is one of the most significant reforms to retirement law in recent history, and levels the playing field for employers and employees when it comes to the accessibility and affordability of retirement plans. The Act includes changes that affect employer-sponsored defined contribution plans, such as profit-sharing plans, 401(k) plans, 403(b) plans and stock bonus plans.
One of the most notable changes is the increase in the age for mandatory withdrawals from retirement accounts, or RMDs. The original SECURE Act of 2019 raised the RMD age to 72 for retirees who had not yet reached age 70½. SECURE 2.0 will further increase the RMD age to 73 in 2023 and 75 in 2033. This change is especially significant given that Americans are living longer and may need their savings to last longer.
In addition to raising the RMD age, SECURE 2.0 will also enable workers aged 60 to 63 to contribute more to their retirement accounts. Starting in 2025, their maximum catch-up contribution will be the greater of $10,000 or 50% more than the regular catch-up contribution for adults aged 50 to 60. This limit will also be indexed for inflation in future years.
SECURE 2.0 also requires most employers with 401(k) or 403(b) plans to automatically enroll new, eligible employees at a 3% contribution rate and increase the contribution 1% annually until it reaches at least 10% (but no more than 15%). Long-term part-time employees with at least 500 hours of service in each of two consecutive years must be eligible for 401(k) or 403(b) plans, beginning in 2025.
Additionally, the Act requires employers to offer emergency savings accounts that are linked to retirement plans. Employees can set aside up to $2,500 in these Roth-like accounts, with penalty-free access to the funds allowed once a month. Starting in 2024, employers will also have the option to make matching contributions to employees’ retirement plans if the employee makes qualified student loan payments.
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