Anyone saving for retirement got a big boost at the tail end of 2022 thanks to the SECURE Act 2.0.
While the initial Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in 2019, the 2022 revision introduced even more changes with additional benefits for retirement savers.
Read on to learn about the 10 most important changes to retirement savings that the SECURE Act 2.0 will roll out between now and 2024.
Higher required minimum distribution (RMD) age for IRAs
Once you reach a certain age, you must start making withdrawals from your employer-sponsored retirement account — and pay income tax on the money withdrawn.
Until now, the required minimum distribution (RMD) age was 72, but the newest iteration of the SECURE Act ups that age to 73.
If you have another source of income or other savings, this change means you can put off dipping into your tax-advantaged retirement account for a little while longer.
No more RMDs for employer-sponsored Roths
In the past, workers and retirees were required to take a required minimum distribution from employer-sponsored Roth 401(k) accounts, but not from Roth IRA accounts.
Now, employer-sponsored Roths are also free of the RMD. You should be able to keep that money in your account penalty- and tax-free, if you so choose.
Lower penalties for missing an RMD
While you’ll still be penalized if you don’t take your IRS-mandated RMD in time, the penalties are now much lower: instead of paying a (frankly unbelievable) penalty of 50% of the amount you should have withdrawn but didn’t, your penalty will go down to 25%.
Even better, if you didn’t take an RMD from your IRA on time, you can whittle that penalty down further. Specifically, if you make the required withdrawal and resubmit your taxes with the correction, the penalty will drop to just 10% of the withdrawal.
Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.
Rollovers of 529 education savings into Roth IRAs
If you saved money for college in a 529 savings account but your beneficiary never used the money, you can roll those funds into a Roth IRA for the beneficiary starting in 2024, penalty free.
Bear in mind that you can only roll over your 529 savings under certain conditions and with more than a few caveats. For instance, you can only roll over $35,000 in total without a penalty.
Still, this new rule makes a huge difference for families who would otherwise have lost some of their hard-earned 529 savings to penalties and taxes.
Increases for catch-up contributions
Once you reach age 50, you’re usually allowed to make additional catch-up contributions to your 401(k) so you can gear up for retirement. Right now, those extra contributions are limited to $6,500 a year (depending on the type of retirement account you have).
But with the SECURE Act, workers between ages 60 and 63 might be able to make up to $10,000 in catch-up contributions starting in 2025. Those extra contributions not only accelerate your retirement savings, but may boost your tax refund.
Auto-enrollment in new employer-sponsored plans
If you haven’t started saving for retirement because you don’t know how to opt into your employer’s retirement plan, your life just got a lot easier.
Starting in January 2025, most companies with employer-sponsored 401(k)s and 403(b)s must automatically enroll their qualifying employees in the retirement savings plan.
The minimum contribution amount must be at least 3% from each auto-enrolled employee, and employees can still choose whether they want to participate in their employer’s retirement plan.
But the automatic enrollment should save employers and their workers time, stress, and money while making sure more Americans than ever can start saving for retirement and maybe even retire earlier than expected.
Student loan payments qualify for contribution-matching
It can be hard to balance retirement contributions with paying off expensive student loan debt, but if you aren’t contributing to a retirement account, you can’t benefit from employer contribution matches.
This can drastically impact your ability to save, a problem the SECURE Act aims to fix by letting payees count qualifying student debt payments as deferred income.
Employers can then match their retirement contributions to the employee’s debt payment.
This aspect of the SECURE Act doesn’t kick in until 2024. If your employer does offer a contribution match, it might be worth talking to them this year to ensure you’re on the same page about your own student debt payments and your employer’s contribution matches.
Incentives to encourage employee participation
Regulations previously prohibited employers from offering small, short-term financial incentives to employees who signed up for retirement plans.
The SECURE Act 2.0 revises this rule so businesses can use immediate financial incentives, like low-limit gift cards, to motivate employees who might not sign up for plans otherwise.
Of course, small financial incentives can’t be paid for with assets from the retirement plan, and the financial motivators should have a low dollar limit. But this rule change took effect at the start of 2023, so here’s hoping your employer has leaned into incentivizing plan signups already.
Retirement plan options for some part-time workers
In the past, employers sponsoring 401(k) retirement plans didn’t have to make those plans available to part-time workers; at least, not until those workers had been with the company for three years or met other eligibility requirements. The SECURE Act lowers the time requirement to two years, which should help more part-time employees start their savings.
Penalty-free withdrawals for emergency expenses
Starting in 2024, individuals may make withdrawals, without penalty, of up to $1,000 per year for emergency expenses. That money can be paid back to the retirement account within three years, and no more may be withdrawn within the three-year repayment period unless it is paid back. But, in a real emergency, you can tap into those savings.
Individual survivors of domestic abuse can also remove a limited amount of cash from their retirement accounts without incurring a 10% early withdrawal fee. Plus, if survivors pay back the amount of money they withdrew, they’ll receive a refund on any income tax they paid on the money they eventually use to refund their retirement accounts.
Do you dream of retiring early? Take this quiz to see if it's possible.
The SECURE Act’s changes to the tax rules around retirement savings should make it easier for you to save more money and to access funds on your own timetable.
Bear in mind, though, that each change comes with its own qualifications, and many changes won’t become permanent until 2024.
Use the time between now and then to learn more about the changes we listed here and make the most of your savings accounts this year.
Smart Asset Benefits
- Get matched with fiduciary financial advisors
- Advisors are vetted and certified fiduciaries
- Take the mystery out of retirement planning
- Their matching tool is free