SECURE 2.0 (pt. 1)
January 17, 2023
SECURE is supposed to stand for "Setting Every Community Up for Retirement Enhancement." It sure looks like "Setting Every Community Up for Retirement Exasperation" is more accurate. Why? It's needlessly complex and fixes very few problems affecting most Americans.
Our first blog post on this new retirement savings legislation focuses on key points that are applicable to educators but not game changing in our opinion. Huge thanks to Scott for making sense of this behemoth. We have an accompanying podcast on these changes that can be accessed below.
Applicable But Likely Not Game Changing
Automatic Enrollment for New Plans — Applies to plans adopted after January 1, 2025. Does not apply to governmental or church 403(b) plans, SIMPLE 401(k) plans, businesses in existence less than three years, and employers with 10 or fewer employees.
403(b) MEPs (Multiple Employer Plan) — Effective now. Permits employers to join together. Already many MEP plans in place (CalSTRS Pension 2, WEA Member Benefits for example).
RMD (Required Minimum Distributions) Age Increases to 73 and 75 — Effective 2023 and 2033 respectively.
Student Loan Payments Treated as Elective Deferrals for Matching Purposes — Very few governmental 403(b) or 457(b) plans offer match.
New Penalty-Free Withdrawals — Effective 2024. Includes: Domestic Abuse, Qualified Disasters, Terminal Illness, Qualified Long-Term Care Distributions, and $1,000 for any reason.
Emergency Savings Accounts Within 403(b), 457(b) and 401(k) — Effective 2024. Establishes a "savings account" within a defined contribution plan. Can contribute up to $2,500 annually on a Roth basis. May withdraw from it four times a year.
Employer Contributions Can Now Be Made As Roth — Effective now. Education employer contributions to these plans are rare.
Allow 529 Plan Money to move to a Roth IRA — Effective 2024. Roth IRA receiving money must be in name of 529 beneficiary. 529 must be at least 15 years old. Contributions in last five years (and earnings) ineligible. Can only move an amount per year equal to IRA contribution limit (less contributions already made for the year). Lifetime maximum movement of $35,000.
Saver's Match (previously known as Savers Credit) — Effective 2027. Changes Saver’s Credit to a Match and improves it by sending the money directly to a retirement account and making it fully refundable (previously only refundable if you had a large enough tax liability). Income limits are pretty low: phase out for single is AGI of $20,500 - $35,500, and married AGI of $41,000 - $71,000.
Disaster Plan Loans — Effective since January 26, 2021. May take loan of up to 100% of vested 403(b) or 457(b) balance (normally limited to the greater of $10,000 or 50% of participant’s vested balance), up to a maximum of $100,000 (normally limited to $50,000). In addition, repayment dates for certain payments may be delayed for one year. Repayments must be made within five years plus the time of the disaster period plus 180 days. We don't believe plans need to require this option.
Got all of this? Next blog will cover provisions that are most applicable to the 403(b) and educators. This will also include an accompanying podcast.
Stay wise and well (and let's all advocate for simpler saving for retirement solutions)
Related Podcast:
SECURE Act 2.0 (pt. 1) Setting Every Community Up for Retirement Enhancement or Exasperation? Part one of two part look at new retirement savings legislation. Listen Now »