LGT's Profit Sense

Congress passed the original Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. The House of Representatives passed a bill that builds on that law’s improvements, the Securing a Strong Retirement Act (SSRA), in early 2022. The Senate passed a different bill, the Enhancing American Retirement Now (EARN) Act.

Congress combined elements of the SSRA and the EARN Act to create the SECURE 2.0 Act, found in Division T of the CAA with many provisions.

Effective Immediately

• For employers with no more than 50 employees, provides a tax credit equal to 100% of the cost to establish a retirement plan for qualifying plans
• Raises the age for the first required minimum distribution (RMD) from traditional IRAs and other plans from 72 to 73 effective January 1, 2023, and to 75 as of January 1, 2033
• Eliminates 10% penalty on early withdraws for specified individuals who are terminally ill or who endure a natural disaster
• Reduces the penalty for failing to take an RMD from 50% to 25%
• Allows a qualified charitable distribution (QCD) of up to $100,000 per year as an RMD after age 70½
• Expands the availability of qualified longevity annuity contracts (QLACs)
• Allows for distributions of up to $2,500 if used to purchase qualifying long-term care insurance
• Outlines how fiduciaries may proceed with plan overpayment recovery and provides them with relief in the case that they choose not to seek recovery of overpayments

Effective January 1, 2024

• Allows employers to make matching contributions to 401(k) and SIMPLE IRA plans based on employees’ student loan payments
• Eliminates 10% penalty on early withdraws for specified individuals who endure a financial emergency or are victims of domestic abuse
• Allows for beneficiaries of 529 plans to rollover up to $35,000 over the course of their lifetime into their Roth IRA if the account has been open for more than 15 years. These rollovers are subject to the annual Roth IRA contribution limits.
• Enables surviving spouses of an employee who passes away before their required minimum distribution period has begun to elect to be treated as an employee for the purpose of the required minimum distribution rules
• Enables employers to offer employees with emergency savings accounts that allow for $1,000 annual distributions for financial emergencies to be received tax free

Effective January 1, 2025

• Provides for automatic enrollment of certain employees in new 401(k) plans, with opt-out provisions
• Entitles individuals ages 60 to 63 to increased catch up contributions to be adjusted in 2025 based on 2024 amounts and will be indexed for inflation moving forward
• Reduces the length of time part-time employees must have worked to be eligible for 401(k) plans from three years to two

Final Thoughts

Notify your financial advisor if you believe any of the early withdraw penalty relief applies to you so it can be correctly reported on your 2022 tax document 1099-R.

Have questions? We would love to help!

If you have any questions or would like additional information about anything mentioned, please comment below or email us at askus@lgt-cpa.com.