SECURE Act 2.0: What It Means for Your Retirement

The newly passed bill offers changes to RMDs, new Roth rules and other tactics to take advantage of

Congress’ year-end omnibus spending bill contained a section called the SECURE 2.0 Act of 2022, which addresses a variety of retirement planning topics as a follow-up to the first SECURE Act, passed in late 2019. Here are the most important things you need to know:

Required Minimum Distributions

The original SECURE Act changed the starting age for required minimum distributions from 70.5 to 72, and this bill pushes it out even further. Beginning in 2023, RMDs won’t be required until age 73, meaning those turning 72 that year will receive a one-year delay before having to take withdrawals.  In 2033, that age increases again to 75.

What This Means for You:
If you’re turning 72 in 2023, you won’t need to take an RMD during the calendar year. But note that none of these changes will impact those who are already subject to RMDs in 2022.  Also note that beginning in 2024, RMDs will no longer be required at all for participants in a Roth 401(k) plan, just as is the case now for Roth IRAs.

Qualified Charitable Distributions

The bill provides two important enhancements to Qualified Charitable Distributions (QCDs), which are direct gifts to charity from an IRA.  First, the $100,000 annual limit on gifts per donor will be adjusted for inflation beginning in 2024. Second, donors are now able to make a gift from an IRA to charitable remainder trusts (CRTs) or charitable gift annuities. 

What This Means for You:
The new flexibility comes with some limitations as well. You can make just one QCD to a CRT or charitable gift annuity during your lifetime, with a maximum transfer of $50,000 (adjusted annually for inflation). The trust or annuity must be solely funded from the QCD, and all distributions from the trust or annuity must go back to the person who funded the account (and/or their spouse) and will be treated as taxable, ordinary income.

Catch-Up Contribution Rules

In order to encourage more retirement savings, the bill has increased “catch up” contribution limits for account owners who reach specific ages.

• 401(k) and 403(b) Plans: Current rules allow individuals to contribute an additional $7,500 beginning the year they reach 50. For individuals ages 60 through 63, that catch-up limit will increase in 2025 to $10,000 or 150% of the age 50 catch-up amount, whichever number is greater.
• Simple IRAs: , the base $3,500 catch-up amount will increase to $5,000 or 150% of the base amount, whichever is greater, for participants ages 60 through 63.
• Traditional and Roth IRAs: The current $1,000 catch-up amount when the plan owner reaches age 50 will be increased for inflation beginning in 2024.

What This Means for You:
Once you turn 64, the enhanced catch-up for the 401(k) and 403(b) goes away, although the base catch-up is still allowed. So if you’re in this age bracket, it makes sense to take advantage of the catch-up rules as soon as you can.

Converting a 529 to a Roth

The bill allows you to transfer unused funds from a 529 college savings account to a Roth IRA beginning in 2024, as long as the Roth IRA has the same beneficiary as the 529 plan. The maximum rollover amount in any year is limited to the IRA contribution limit for that year ($6,500 for 2023) reduced by any actual Traditional or Roth IRA contributions made that year.  Also note that there is a lifetime maximum rollover of $35,000. 

What This Means for You:
This strategy only works for established 529 plans, not new ones. The rollover is contingent on the 529 plan having existed for at least 15 years as of the date of the rollover. Also, the amount you can roll over is limited to any contributions made to the plan before the last five years.  For example, a rollover done on July 1, 2024, must come from a 529 plan opened prior to July 1, 2009, and can only be made from the balance in the account prior to July 1, 2019.

Roth Opportunities

Beginning immediately, participants in defined contribution plans such as a 401(k) or 403(b) may designate any employer match or other voluntary contribution to be made to a Roth plan.  In addition, employers can now modify their SEP or Simple IRA plans to allow participants to designate their accounts as Roth accounts.

What This Means for You:
Contributions that are designated as Roth would be considered taxable income for you, but future withdrawals from the plan would be tax-free. So if you’re looking for ways to reduce your taxes in retirement, these options are worth pursuing. Employers will also need time to amend their plans to allow for these new contributions, so it may be a while before you can actually take advantage of them.

Exemptions for Withdrawals

Beginning in 2024, plan participants make take an early, penalty-free withdrawal to cover emergency personal expenses for themselves or their family. Withdrawals are limited to the lesser of $1,000 or the plan balance over $1,000. They can also withdraw funds to pay for qualified long-term care insurance premiums; the withdrawal would be taxable but exempt from the 10% early withdrawal penalty. 

What This Means for You:
Note that you are only eligible for the personal-expense withdrawal once every three years. This provision will be effective for withdrawals occurring three years after the bill is enacted (approximately January 2026).

There are several other provisions regarding things like new employer-sponsored retirement plans for small businesses. Talk to your Baird Financial Advisor about how you can take full advantage of SECURE 2.0. You can also review this article for more details on these and other changes included in the bill.

Editor’s Note: This article was originally published January 2023 and was updated February 2023 with more information.

The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.