10 SECURE 2.0 key provisions that may impact you

This legislation contains the SECURE 2.0 Act of 2022 (“SECURE 2.0”). SECURE 2.0 includes several provisions that are anticipated to make it easier for individuals to save for retirement. Although not an exhaustive list, the following identifies some key provisions of SECURE 2.0.

Key provisions:

1. Required minimum distributions (RMD) age increases

The required age for when an RMD must begin is increased for certain participants and spousal beneficiaries of a participant that died prior to reaching the RMD beginning date, based on the participant’s date of birth.  

New RMD ages are:

• The increase in age allows participants and traditional IRA owners to keep their savings in their retirement plan for a longer period.
• Effective date: Calendar years after December 31, 2022 
• Applicable plans: 401(a), 401(k), 403(b), 457(b) plans and traditional IRAs 

2. RMD excise tax reduction

The Internal Revenue Code currently imposes a 50% excise tax on RMD’s that are not taken in a timely manner. SECURE 2.0 reduces the excise tax from 50% to 25% (and to 10% if the correction is made in a timely manner). The reduced penalties allow participants to preserve more of their retirement income.

• Effective date: Taxable years beginning after December 29, 2022 
• Applicable plans: 401(a), 401(k), 403(b), 457(b) plans and traditional IRAs

3. Roth RMD rule change for plan distributions

RMDs to a plan participant from an employer-sponsored retirement plan were previously based on the total of non-Roth and Roth amounts in that participant’s account. SECURE 2.0 eliminates this requirement so that the designated Roth account under the plan is not subject to RMD during the participant’s lifetime. This allows participants to preserve account balances; however, following the participant’s death, the RMD payable to beneficiaries will include both non-Roth and Roth amounts.

• Effective date: Tax years after December 31, 2023 
• Applicable plans: 401(k), 403(b), and governmental 457(b) plans with a designated Roth feature

4. Surviving spouse election to be treated as employee for RMDs

If a participant designates their spouse as the sole beneficiary, then the spouse may irrevocably elect to have their RMD calculated under the Uniform Lifetime Table, which is typically available only for a plan participant and is potentially more favorable than the previously required Single Life Table.

• Effective date: Calendar years after December 31, 2023
• Applicable plans: 401(a), 401(k), 403(b) and 457(b) plans

5. Catch-up contribution limits

Participants who turn age 50 or older by December 31 of a given tax year are eligible to make Age 50+ catch-up contributions to an employer-sponsored retirement plan if that plan allows for Age 50+ catch-up contributions. Participants who attain ages of 60-63 by December 31 of a given tax year may be able to make enhanced catch-up contributions if their plan allows for them. The enhanced catch-up contribution limit for 2025 is $11,250 but may be adjusted in future tax years.

• Effective date: Plan years after December 31, 2024
• Applicable plans: 401(k), 403(b) and governmental 457(b) plans

6. Roth catch-up

If a participant’s prior year FICA wages from the employer sponsoring the plan exceeded $145,000, then a participant’s Age 50+ catch-up contributions can only be made as a Roth contribution. The plan must have a Roth feature and Age 50+ catch-up contributions available for all eligible participants, or participants impacted by the Roth catch-up mandate may not make Age 50+ catch-up contributions to the plan. The $145,000 threshold is subject to IRS annual cost of living adjustments in $5,000 increments.

• Effective date: Although originally effective for tax years after December 31, 2023, the Internal Revenue Service delayed enforcement of this provision for the 2024 and 2025 tax years
• Applicable plans: 401(k), 403(b) and governmental 457(b) plans

7. 529 college savings account (“529 Account”) portability

A beneficiary under a 529 Account that has been maintained for at least 15 years may directly roll over up to a lifetime limit of $35,000 to a Roth IRA they own, subject to their annual Roth IRA contribution limits. Amounts rolled over cannot exceed the aggregate amount of contributions made to the 529 Account, adjusted for earnings, at least five (5) years prior to the date of the rollover. This resolves concerns about overcontributing to a 529 Account and allows individuals with funds remaining in a 529 Account to preserve favorable tax treatment in their Roth IRA

• Effective date: Distributions after December 31, 2023 
• Applicable plan: Roth IRA

8. Special disaster relief rules for workplace retirement plans and IRAs

Special disaster-related provisions permit retirement plan distributions and loans for people affected by major disasters declared by the federal government to provide financial relief to those qualified and in need.

• Expanded distribution and tax relief: Up to $22,000 of qualified disaster recovery distributions permitted for qualified individuals. A qualified disaster recovery distribution is exempted from the IRS 10% premature distribution penalty tax.
• Relief to repay distributions taken for primary home purchase/construction distributions: Repayment options for first-time homebuyer distribution from an IRA or a hardship withdrawal from a 401(k) or 403(b) plan if the money was to be used to purchase or construct a primary home in a disaster area if the disaster prevented the use of funds.
• Plan loan relief: Employer-sponsored plans may permit an increased maximum available loan amount to the lesser of 100% of the vested benefit or $100,000, aggregated across all plans of the employer, for qualified individuals. In addition, if permitted by the plan, for loans that were outstanding on or after the later of (1) the first day of the incident period or (2) the date of the federal disaster declaration, plan sponsors may suspend loan payments due within 180 days after the last day of the incident period and extend the due dates for these payments up to one year.

• Effective date: Retroactive application to disasters occurring on or after January 26, 2021
• Applicable plans: 401(a), 401(k), 403(b), or governmental 457(b) plans (distributions and loans), traditional IRAs (distributions only)

9. Coverage for long-term part-time workers

The minimum eligibility service requirements are further reduced from three years, as set forth in the original SECURE Act, to two years. This allows part-time workers to be eligible to join applicable retirement plans sooner.

• Individuals will now be eligible as of the earlier of (1) one year of service, or (2) the completion of a 24-month period consisting of two consecutive 12-month periods with 500 hours of service and attainment of age 21 by the end of the calendar year.
• The 12-month period beginning before January 1, 2021 is not taken into account for 401(k) plans, and the 12-month period before January 1, 2023 is not taken into account for 403(b) plans.
• This reduction in minimum eligibility service requirements does not apply to: 1) employees subject to collective bargaining, or 2) nonresident aliens with no U.S. source income, or 3) student employees in a 403(b) plan subject to ERISA whose wages are not subject to FICA, or 4) employees in a 403(b) plan subject to ERISA who are eligible to make elective deferrals under another 401(k), 403(b) or governmental 457(b) plan sponsored by the same employer.

• Effective date: Plan years after December 31, 2024 
• Applicable plans: 401(k) and 403(b) plans subject to ERISA

10. Modification of age for qualified ABLE accounts

The age-based threshold at which an individual’s disability must occur for contribution eligibility to an ABLE account increases from age 26 to age 46. Generally, distributions from an ABLE account are tax-free if used for qualified disability expenses of the account’s designated beneficiary.

• Effective date: Taxable years beginning after December 31, 2025 
• Applicable plan: ABLE Program