Secure 2.0 Act of 2022: Public Law No: 117-328 (Division T)
At the end of 2022 President Biden signed the Secure 2.0 Act into law, which provides very lengthy and detailed changes to laws regarding retirement savings. Some changes are not effective for several years and the bill covers a wide array of issues, but below are some interesting changes in estate and retirement planning.
Changes that have already come into effect and may change in the coming years:
The Secure 2.0 Act requires that individuals with many common retirement plans begin receiving distributions, called Required Minimum Distributions, from their accounts at a certain age. The age at which individuals are required to start receiving these money distributions has increased to 73 and will be 75 in 2033. This will allow for individuals to leave their money in the accounts to accumulate for a longer period of time before beginning to receive distributions. In order to protect taxpayers from extreme penalties for this change in requirements, the Act also reduced the penalty for failure to take out the Required Minimum Distributions in the appropriate way, especially if the mistake is corrected quickly. Additionally, although amounts that one may contribute to their retirement plans per year are limited, the Act provides that at age 50 people may contribute additional funds which are capped.
The Act also provides that the current limit of a $100,000 qualified charitable distribution per year for those over 70.5 years old shall be adjusted for inflation accordingly. Those making qualified charitable distributions may also now make a one-time distribution to a charitable remainder trust as a way of funding the trust, up to $50,000.
Changes to be aware of, as they become in effect in the coming years:
Although employees may opt out, the Secure 2.0 Act expanded requirements for individuals to be automatically enrolled in 401(k) and 403(b) plans beginning in 2025. This automatic enrollment does have exemptions, particularly for employers with fewer than 11 employees.
Beginning in 2024 employers may match their employee’s contributions to their retirement plan based on how much that employee is also paying in student loan expenses, which is a good option for employers to consider.
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