The SECURE 2.0 Act of 2022 was signed into law on December 29, 2022. The law builds on and expands the SECURE Act of 2019 and it expands coverage, increases retirement savings and simplifies retirement plan rules. Some of the key provisions of the Act include:
EFFECTIVE DATE DECEMBER 29, 2022
Optional Treatment of Employer Matching or Profit Sharing Contributions
- Permits Defined Contribution plans to provide participants with the option of receiving employer contribution on a Roth basis.
EFFECTIVE DATE: PLAN YEARS BEGINNING AFTER DECEMBER 31, 2022
Required Minimum Distributions (RMDs)
- The required beginning date would be increased from age 72 as follows:
- To age 73 for individuals who attain age 72 after 12/31/2022 and age 73 before 1/1/2033
- To age 75 for individuals who attain age 74 after 12/31/2032
Modification of credit for small employer plan startup costs
- Increases the 3 year small employer startup tax credit from 50% to 100% for employers with up to 50 employees. Small employer startup tax credit is capped at $5,000 per year.
- For employers with 51-100 employees, the current limit of 50% of startup costs up to $5,000 remains in place.
Automatic cash-out minimum
- The Act increases the amount of the automatic cash-out provision from $5,000 to $7,500. Participants with at least $7,500 in vested benefits cannot be forced out of a qualified retirement plan.
EFFECTIVE DATE: PLAN YEARS BEGINNING AFTER DECEMBER 31, 2023
Withdrawals for certain emergency expenses
- Provides exception from the 10% penalty for premature distributions if it is used for emergency expenses.
- Expenses must be for unforeseeable or immediate financial needs relating to a personal or family emergency.
- One distribution per year up to $1,000.
- Participant has the option to repay the distribution within 3 years.
- No further emergency distributions within the 3 year payback period unless the amount has been repaid.
Roth Plan Distribution Rules
- Eliminates the requirement for participants in qualified plans to receive RMDs for Roth accounts in qualified plans during their lifetimes. This brings the Roth 401(k) in line with existing Roth IRA rules.
Catch-up Contributions
- All catch-up contributions are made on a Roth post-tax basis.
- There is an exception for participants with compensation of $145,000 or less.
EFFECTIVE DATE: TAXABLE YEARS BEGINNING AFTER 12/31/2024
Higher catch-up limits for individuals aged 60-63
- Increases the catch-up in a 401(k) to the greater of (a) $10,000 and (b) 150% of the regular limit.
- The limit for SIMPLE plans is the greater of (a) $5,000 and (b) 150%
- The increased amounts are indexed for inflation for tax years beginning after 12/31/2025.