SECURE Act 2.0 of 2022: Key Provision for Hard Working Professionals

Last December, President Biden signed a $1.7 trillion budget bill that included the SECURE 2.0 Act of 2022.

The SECURE 2.0 Act is a piece of bipartisan legislation that is designed to encourage more people to save for retirement. It is anticipated to reshape the retirement tax benefits for hard-working professionals, particularly those with high incomes.

1. Increased Age for RMDs: If you were born in 1960 or later, your RMD will not begin until you are 75 years old. Therefore, your money will grow tax-deferred for a longer period of time.

2. Matching for Roth Accounts: Beginning immediately, you can choose to have your employer match your Roth contributions. Before the act, employer matches could only be pre-tax. Now, they can make these contributions as vested Roth contributions.

a. Roth accounts in employer-sponsored plans are no longer subject to RMDs, meaning your money can continue to grow tax-free while you are still alive.

b. Self-employed individuals with a SEP-IRA or Simple IRA can now add a Roth account and make contributions.

c. Traditionally, employer contributions to a Roth have been made before tax; however, you can now pay the tax on it and then withdraw the funds tax-free in retirement.

3. Required Automatic Enrollment in a Retirement Plan: Beginning in 2025, employees will be automatically enrolled in employer retirement plans (401(k) and 403(b) plans) when they become eligible, with a minimum default contribution of at least 3% of their salary. The amount is then increased by one percentage point per year until it reaches at least 10% but no more than 15%. This is an excellent way for young professionals to begin saving without even realizing it.

4. Student Loan Payments and 401(k): Starting in 2024, your employer will be able to "match" your student loan payments with contributions to a retirement account.  This is designed to help people who are trying to save for retirement but can't because of their student loan debt.

5. 529 Savings Plan to Roth IRA: Beginning in 2024, some people may be able to rollover a 529 plan asset that they have maintained for at least 15 years to a Roth IRA for the beneficiary. ( there are many rules to follow, such as a $35,000 lifetime maximum and a limit on how much you can put into a Roth account each year.)

 What else is in SECURE 2.0?

SECURE Act 2.0 has a lot of information, with more than 90+ provisions. A summary of Act is available here.