Secure Your Retirement With SECURE 2.0
President Biden signed The Consolidated Appropriations Act of 2023 (HR 2617) into law on December 29, 2022. This Act has several provisions that impact retirement savings plans, aiming to enhance the 2019 SECURE Act. These provisions, known as SECURE 2.0, provide additional advantages to employers to encourage offering retirement plans and improve the retirement outcomes of employees. The Act contains roughly 90 provisions related to retirement savings plans. Below are some of the highlights.
After leaving an employer, did you lose track of a 401(k) or pension? Well, there's good news! The Department of Labor will soon establish a national searchable online database for participants to locate their ERISA-covered pension and defined contribution plans, such as 401(k) and 403(b) plans.
For those born between 1951 and 1959, the Act delayed Required Minimum Distributions (RMDs) to start at age 73. In addition, anyone born in 1960 or later can wait until age 75 to begin taking RMDs. Consider implementing additional tax planning strategies like Roth conversions, harvesting capital gains, and accelerating taxable distributions before RMDs commence to mitigate overall tax liability in the future for you or your heirs.
- As of 2025, workers aged 60, 61, 62, or 63 may increase their 401(k) or comparable retirement plan contributions up to $10,000 (or 150% of the applicable catch-up limit).
- Similarly, SIMPLE IRA participants can make increased catch-up contributions of $5,000 (or 150% of the applicable catch-up limit).
- Companies may add a provision to their defined contribution plans that allow participants to receive matching contributions on an after-tax Roth basis.
- As of 2024, for employees with an annual compensation of more than $145,000 (adjusted for cost-of-living), all catch-up contributions to qualified retirement plans will be Roth contributions. Prior year W2 compensation determines eligibility to make tax-deferred or after-tax contributions.
- If you contribute to a SEP or SIMPLE IRA, consider whether making newly allowed Roth contributions makes sense for your personal tax situation.
- Excess 529 Funds: In 2024, 529 beneficiaries with extra 529 plan funds may consider transferring up to the annual maximum ($6,500 in 2023) and a lifetime amount of $35,000. Note that the 529 account must have been open for over 15 years.
- Student Loans: In 2024, plan sponsors can make matching contributions to 401(k), 403(b) plan, or SIMPLE IRA when employees make "qualified student loan payments," which refers to any debt incurred by the employee solely to pay for their qualified higher education expenses.
For New Plan Sponsors
Effective this year (2023), the startup credit for establishing a retirement plan increased from 50% to 100% for employers with up to 50 employees and phased out for employers with 51 to 100 employees. The credit is $250 per employee with a minimum of $500, a maximum of $5,000, and never more than the actual plan admin costs. The applicable percentage is 100% in the first and second years, 75% in the third year, 50% in the fourth year, 25% in the fifth year, and no credit for tax years after that.
The first SECURE Act requires employers to allow long-term, part-time employees to make elective deferral contributions to the employers' 401(k) plans once the part-time employees have completed three consecutive years of service (where the employee completes at least 500 hours of service). Effective for 2025, SECURE 2.0 reduces the three-consecutive-year rule to two consecutive years.
The goals of SECURE Act 2.0 are to improve retirement outcomes for employees by increasing access to retirement plans, growing and preserving savings, and helping Americans manage competing priorities. But implementing these changes is complicated. For over two decades, the fiduciary financial planners at Hurlow Wealth Management have worked with individuals and businesses to navigate legislative changes by clarifying and prioritizing the necessary adjustments, enabling them to move forward confidently. Reach out to schedule a complimentary introductory call today.