The SECURE 2.0 Act of 2022

XPYRIA Team Insights

The SECURE 2.0 Act of 2022

James P. Tomasovich, CIMA®, AAMS® XPYRIA Team Insights

The SECURE 2.0 Act of 2022, a continuation and expansion of the SECURE Act of 2019, was designed by law makers to broaden and improve options for retirement savings—creating easier and more accessible retirement options for everyone. 

Let’s take a quick look at a few of the nearly one hundred retirement savings provisions:

Excess 529 Plan Fund Rollover

This provision provides an alternative for excess (unused) 529 Plan funds. If funds remain in the plan when the beneficiary’s education expenses have finished, the beneficiary now has the option to rollover up to $35,000 into a Roth IRA, tax and penalty-free. There are a few restrictions, however. For example, the 529 account must be open for at least 15 years before funds can be rolled over to a Roth IRA. Also, contributions in the last 5 years cannot be rolled over immediately, and the “regular” Roth IRA restrictions apply based on income and contribution limits. 

While this may require planning and a few years to execute, the new provision allows individuals to reclassify some of these savings without tax and penalty.

Required Minimum Distributions (RMDs)

In 2023, the age requirement to begin taking RMDs will increase from 72 to 73. In 2033, the age requirement will increase again to 75.  

In another positive change, the penalty has been reduced from 50% to 25% for individuals who do not take their RMD on time. 

Lastly, the RMD requirement for Roth 401(k) accounts will be eliminated for the participant’s lifetime beginning in 2024.

Expanded Catch-up Contributions

Retirement plan participants 50 and older can currently contribute an additional $7,500 to their 401(k) account, above and beyond the plan limits. Starting in 2025, participants ages 60 to 63 will be able to save an additional $10,000 above the plan limits. This allows individuals, who are presumably closer to retirement, the ability to save more in these tax-advantaged accounts.

Automatic Retirement Plan Enrollment

Beginning in 2025, employers who start new retirement plans will be required to automatically enroll employees in their plan. This will begin with a minimum contribution rate of 3% and increase automatically (by 1% each year) over time. While employees can opt-out of participation, this provision is a considerable change from the old process, which made employees opt-in. As a result, individuals who ignore their employer’s plan savings options will begin saving when eligible. 

Saver’s Match

The Saver’s Match will replace the Saver’s Tax Credit in 2027 for low- and mid-income savers. The key change will be how the credit is paid. Instead of having the credit paid against your tax liability when you file your return, the Federal Government will deposit a matching contribution directly to your retirement account.

Employer Plans

The SECURE 2.0 Act has made many changes for employers as well. This includes making contributions to the company sponsored plans on behalf of employees who are paying down student debt, but not yet saving in the plan. Additionally, start-up tax credits have been expanded, and a new Starter K deferral-only plan.

There are many more provisions and upcoming changes that could be beneficial to retirement savers. Please reach out to any XPYRIA advisor to further discuss if any of the new provisions set forth may be an opportunity for you.

*Disclaimer: Please consult a professional when making changes to your financial plan to take advantage of the changes above. Many provisions include income limits, contribution minimums, and additional details.

About the Author

James P. Tomasovich, CIMA®, AAMS®

Senior Client Advisor

Mr. Tomasovich is a Senior Client Advisor at XPYRIA, and a member of the Firm’s Investment Committee.  He has fiduciary responsibility in client relationships, requiring actions and recommendations to be based on the best interest of the client.  Jim advocates for his clients in designing and maintaining cost effective financial strategies, reflecting the unique needs and objectives of each relationship.