January 19, 2023
SECURE 2.0 Act: Expanding the Ways Americans Save for Retirement
Highlighting a few of the most pertinent and broad-reaching provisions
The SECURE 2.0 Act of 2022 (“the Act”) was signed into law by President Biden on December 29, 2022. The purpose of this legislation was to build upon legislation passed in December of 2019 entitled The Setting Every Community Up for Retirement Act of 2019 (“SECURE Act”) by expanding on the ways Americans save for retirement through individual retirement accounts and employer-sponsored plans. The Act is designed to benefit both employees and employers, thereby making it more attractive for employers to offer retirement plans and providing more incentives to employees to improve retirement outcomes.
It is critical to remain well-informed of legislative changes to help your clients make the best decisions no matter where they are on their retirement planning journey.
Whether your client is nearing retirement age wondering about contribution limits and withdrawal requirements, a small business owner looking to establish a retirement plan for their employees, a long-term part-time worker hoping to be included the employer-sponsored retirement plan, a former student seeking to save in the face of student loan debt, or even a soon-to-be parent, there are provisions in the Act that may be relevant and beneficial.
The Act contains over 100 provisions that impact the way Americans save for retirement.
Below we’ve highlighted a few of the most pertinent and broad-reaching provisions to ensure you are in the know.
Effective NOW
Also, eligible employers are allowed a credit equal to an applicable percentage of employer contributions (with some exceptions), not to exceed $1,000 per employee. For this credit, the applicable percentage is 100% in the first two tax years, 75% in the third tax year, 50% in the fourth year, and 25% in the fifth. Moreover, these credits are reduced for employers with between 51 and 100 employees. Act Section 102; effective NOW Starting in 2025 individuals ages 60, 61, 62, or 63 will be allowed a catch-up of the greater of $10,000 or 150% of the catch-up limit for that year, indexed for inflation. Note there are different figures for SIMPLE plans. Act Section 109; effective NOW Under current law, simplified employee pension plans (“SEPs”) can only accept employer contributions and not on a Roth basis. The Act allows employers to offer employees the ability to treat both employee and employer SEP contributions as Roth contributions (in whole or in part). Act Section 601; effective for taxable years beginning after December 31, 2022 In 2033, the RMD age will increase to 75. Individuals who are currently taking lifetime RMDs will continue to take a distribution each year based on their age and associated life expectancy factor. Act Section 107; effective NOW Starting in 2023, this excise tax is reduced to 25%. If the plan participant corrects a failure in a timely manner, the excise tax is further reduced to 10%. Act Section 302; effective NOW
Effective 2024
This provision serves to benefit employees who are unable to save for retirement due to paying off student loans. Employees must certify annually to the employer regarding the amount of qualified student loan payments made by the employees. Act Section 110; effective 2024 As Roth contributions, these amounts are subject to Roth tax treatment as opposed to being considered pre-tax contributions. This rule does not apply to SEPs and SIMPLEs. Act Section 603; effective for taxable years beginning after December 31, 2023
Effective 2025 – Preparation in Advance is Required!
There are several exceptions provided, including SIMPLE 401(k) plans, plans of new companies (in business for less than three years) and plans of employers with 10 or fewer employees. Note that employees may opt out. Act Section 101; employers must be fully compliant in 2025
While the Act provides increased opportunities to save for retirement, everyone’s financial situation is unique. As always, recommend your clients’ consult their tax or legal advisors for guidance on how the Act’s provisions apply to you.
For a more comprehensive list of the most pertinent and wide-reaching provisions that may impact the way you and your clients save for retirement, click on the button below.