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A Down and Dirty Look at the SECURE Act 2.0

A Down and Dirty Look at the SECURE Act 2.0

January 11, 2023

It’s that time of year again—time to start planning for the upcoming tax season. And just like that, Congress squeaked in some last-minute tax changes at the end of 2022. The new legislation is called the SECURE Act 2.0.

Here are some quick highlights you should be aware of:

  • Required Minimum Distributions: If you turn 72 after December 31, 2022 and turn 73 before January 1, 2033, you don’t need to take your first distribution until the April of the year after you turn 73.
  • Penalties for not taking Required Minimum Distributions have been reduced from 50% of the required distribution down to 25%. If you realize your mistake and correct it within two years, the penalty drops to 10%.
  • Employers can now make Roth contributions on your behalf, but you will be taxed on them. Every 401(k) is different in the way that it is set up, so be sure to check in with your employer.
  • Catch-up contributions starting in 2025 will be enhanced at age 60 to up to $10,000 or 150% of the catch-up contribution for those age 50 to 59.
  • For those repaying student loans, employers can now match loan repayments as a contribution to the employee’s retirement plan. For example, if an employee pays back $1,000 in student loans, the employer can choose to contribute $1,000 to their 401(k). This one goes into effect in 2024.
  • What’s NOT included is also important: The back door Roth strategy - where investors who are ineligible for a Roth IRA contribution instead make a contribution to a traditional IRA and then immediately convert to a Roth IRA – remains intact.

This isn’t an all-inclusive list, and the changes will be phased in during the next couple of years. For example, expect it to take a little time for your employer to make changes to their 401(k) plan.

I know these changes can be confusing. The best way to feel more secure about your future is to have conversations with your financial professional and tax advisor. They’ll be able to break down these modifications, so you better understand what they mean specifically for you.

For more information about the SECURE Act 2.0 CLICK HERE.