Secure Act 2.0 of 2022

On December 23^rd, Congress has passed one final spending bill. H.R. 2617, an Omnibus spending bill with bipartisan support in both chambers, will allow the government to continue to run through fiscal 2023 and included in this spending bill is the Secure 2.0 Act of 2022. President Biden signed the bill on December 29^th, making the law effective January 1, 2023.

The Secure Act 2.0 of 2022 is aimed at continuing to build on its predecessor, the Secure Act of 2019. This bill has several significant enhancements which will allow Americans to invest in their future retirements more significantly.

The main highlights of the bill include:

Individual Benefits-

• RMD Age Increases – A pair of changes are included in the bill
  a. Years beginning 1/1/2023 – RMD is raised to 73
  b. Years beginning 1/1/2033 – RMD is raised to 75

• RMD Penalty Relief – The new act will reduce the failure to distribute penalty on RMD’s, even eliminating them in some cases.

• Increased catch up amounts – For tax years beginning January 1, 2025, the amount of catch-up contribution, for those individuals over age 60 will be raised to $10,000 and it will be adjusted for inflation. This will create multiple catch-up contribution tiers, one at age 50 and another at age 60.

• Part Time Employees – In 2024, the Act will allow employees with at least 1,000 hours of service in a 12-month period or 500 hours of service in a two consecutive year period to be eligible to participate in the employer’s qualified retirement plan. This is a change from the current three-year requirement.

• Emergency Withdrawals – SECURE 2.0 allows for a maximum of $1,000 penalty-free distribution for “unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses”. There are also penalty free withdrawals allowed for terminal illnesses and domestic abuse related needs. ‘

• Additional Benefits– The Act also allows for the creation of an emergency account for certain employees as well as enhancing the options available when rolling over their retirement accounts.

Employer Actions and Benefits–

• Mandatory automatic enrollment for new plans – For plan years beginning after December 31, 2024, new 401(k) and 403(b) plans would have to automatically enroll participants upon attaining eligibility. The automatic deferrals would start at a minimum of 3% of compensation and increase by 1% each year to a maximum of no more than 15% of compensation.

• Encourage Employee Contributions – Employers could offer de minimis financial incentives, such as low-dollar gift cards, to boost participation in retirement plans. The financial incentives cannot be purchased with plan assets.

• Employee notices – Under SECURE 2.0, employers are no longer required to send certain notices to employees who have elected not to enroll in an employer’s retirement plan; provided, that the employees are provided with an annual reminder notice of eligibility to participate.

• Unclaimed Accounts – SECURE 2.0 will create a database for employers to search for plan participants that they have been otherwise unable to locate. This site will also be searchable by individuals looking for prior retirement plans.

• Student Loan Repayment – Employers will be able to “match” employee student loan payments with matching payments to a retirement account, giving workers an ability to build their retirement nest egg while also paying off their educational loans.

As you can see, the new legislation offers a robust amount of planning opportunities for those individuals looking to build out their retirement options. Whether you are an individual looking to learn more on the enhancements or an employer trying to ensure compliance with the new law, we encourage you to reach out to our team of tax advisors at HKP!