SECURE Act 2.0: What Does It Mean For Your Retirement Plan?

New legislation has gone into effect that could potentially impact how you plan for your retirement. The SECURE Act 2.0 was signed into law last year and builds on the SECURE Act of 2019 to enhance retirement savings opportunities. It includes several changes to the rules around required minimum distributions (RMDs), the size of catch-up contributions for workplace plans and IRAs, and more.

Important facts about the SECURE Act 2.0:

Increases to the RMD Age:

• The SECURE Act of 2019 increased the required minimum distribution age to 72 from 70 1/2. The SECURE 2.0 increases the RMD age to 73 starting on January 1, 2023, and increases the age further to 75 starting on January 1, 2033.
• This means that individuals can let their deferred retirement savings grow longer before having to take a mandatory withdrawal. 
• Individuals turning 72 in 2023 must take their first year RMD before December 31, 2024 or no later than April 1, 2025. NOTE: if an individual chooses to defer their first year RMD to April 1, 2025, they will need to take a second RMD by the end of the year, which could potentially push them into a higher tax bracket.

Changes to RMD Penalties:

• Effective January 1, 2023 the penalty for failing to take an RMD will decrease from the current 50% to 25% of the RMD amount not taken. The penalty will be reduced to 10% for IRA owners who withdraw the RMD amount previously not taken and submit a corrected tax return in a timely manner.

RMDs for Employer Roth Accounts:

• Beginning in 2024, RMDs will no longer be required for employer-sponsored Roth retirement plans. Previously only Roth IRAs were not subject to RMDs.

Higher Catch-up Contributions:

• The catch-up contribution for workplace plans for individuals 50 or over is currently $7,500 annually. Beginning January 1, 2025, individuals 60-63 years old will be allowed to make catch-up contributions up to $10,000 or 150% of their existing annual catch-up contribution, indexed to inflation.
• Beginning in 2024, individuals who earned more than $145,000 in the prior calendar year (adjusted for inflation) and make catch-up contributions are required to make them to a Roth account using after-tax dollars. Individuals earning $145,000 or less will be exempt from the Roth requirement, and may continue to make traditional, tax-deductible catch-up contributions.
• Currently, IRAs have a $1,000 catch-up contribution limit for individuals 50 years and older. Beginning in 2024, those IRA contributions will be indexed for inflation going forward, which could increase the limit annually based on federally determined cost-of-living increases.

Have more questions? We are here to help. Reach out to your Oppenheimer Financial Professional if you have any further questions or concerns about the new requirements and guidelines of the SECURE Act 2.0.