What Feds Should Know About SECURE Act 2.0

Changes coming to Individual Retirement Accounts (IRAs), employee-sponsored retirement plans (like the TSP), and more!

The SECURE Act 2.0 was signed on the 29^th of December, and builds upon the financial reforms that were enacted through the passage of the first SECURE Act. The legislation makes a bunch of changes to the current law, but in this article, we’ll go over the most important features – especially as it pertains to federal employees.

RMD Ages and Penalties

The RMD age, which was changed from 70½ to 72 with SECURE Act 1.0, will increase to 73 for 2023. It is important to keep in mind that required minimum distributions (RMDs) are taken the following year. So, the 2021 RMDs had to be taken before the end of 2022 as the amount is based on the year-end balance of both IRAs and employer savings plans like the TSP and 401(k)s. This means if you turned 72 in 2022, your 2022 RMD will still be due in 2023. However, if you turn 72 in 2023, your first RMD will not need to be taken until 2025, because it will be based on the 2024 year-end balance. The newly passed act also increase the RMD age to 75 in 2033.

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Currently, there is a 50% IRS penalty on RMDs that are not taken. This has been changed to 25% for both RMDs needed from IRAs and employer-based retirement accounts. For only IRAs, the penalty will be just 10% if the error is corrected in a timely manner.

Roth Accounts in Employer Plans

Thanks to the SECURE Act 2.0, employers will have significantly more options when it comes to employee Roth accounts, including:

- Beginning with the 2024 tax-year, RMDs from Roth accounts in employer-based plans will no longer be required. RMDs are already not needed from Roth IRAs.
- For employers that offer their workers a defined contribution plan, like a 401(k) or the TSP, they will be able to match employee contributions to a Roth account. Currently, contributions matched by an employer can only be pre-tax.
- Affecting those further away from retirement, employers will be able to add “emergency savings accounts” to their defined contribution plans. (No word yet on if TSP will implement these new emergency accounts or not.) These emergency accounts will be tied to the employee’s Roth account within the plan.

Catch-Up Increases

Those age 50 or over are able to contribute more to their retirement plans and IRAs than the annual limit for all citizens. In 2023, the catch-up amounts are capped at an additional $1000 for IRAs and $7500 for 401(k)s and the TSP. Any increase to catch-up contribution limits are currently issued by the IRS. Starting in 2025, the catch-up amounts will be linked to inflation similar to how Social Security cost-of-Living adjustments are tied to the CPI-W inflation index. For those who are between the ages of 60 to 63, their catch-up amount will increase to $10,000 for 401(k)s and the TSP. This amount will be indexed by inflation as well.

529s, QCDs, etc.

Other financial laws were also enacted with the passage of the SECURE Act 2.0. Here some of other important items to note:

Rules will be in place that make it easier to transfer money from one employer plan to another. Transferring between 401(k)s, the TSP, and other retirement savings accounts like 403(b)s, should become more seamless.
Employers will have the option of matching an employee’s student loan payments with contributions to their employer savings account.
Money in 529 accounts will be able to get transferred to a Roth IRA owned by the beneficiary. This can be done only after the money has been in the 529 for 15 years, and the transfer takes place before a 5-year period that ends on the 529 account’s date of distribution. (There will be a $35,000 lifetime limit for these type of transfers.)
If you’re 70½ or older, their qualified charitable distribution (QCD) limit will include a 1-time gift, up to $50,000, that can be made to a Charitable Remainder Unitrust (CRUT), Charitable Remainder Annuity Trust (CRAT), or a Charitable Gift Annuity.
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Until Next Time,

**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.