Provisions that Affect Retirement Plans

Published on June 28, 2023

The SECURE Act 2.0 was signed into law in late December 2022. Out of the 100+ provisions contained in the bill, many have a direct effect on retirement plans (both IRAs and employer-sponsored retirement plans). In this article, we outline some of the provisions that affect retirement plan contributions and in turn, affect account owners’ or plan participants’ retirement savings strategies.

Changes to RMDs

The age for taking required minimum distributions (RMDs) had already been raised in the original SECURE Act to 72. Secure 2.0 raises the RMD age to 73 this year and starting in 2033, this will go up to age 75. SECURE 2.0 also reduces the penalty for individuals who fail to take an RMD, from 50% to 25%.

SECURE 2.0 eliminates RMDs for qualified employer Roth plan accounts beginning in 2024.

NOTE: For employees in workplace 401(k), 403(b), and 457(b) plans, designated Roth account assets will no longer be subject to pre-death RMD rules starting in 2024.

Increased Catch-up Contribution Limits

Taxpayers ages 50+

• IRAs: Individuals age 50 and up with Traditional and Roth IRAs have been stuck with maximum catch-up contributions of $1000 for years. However, starting in 2024, the IRS catch-up limit will automatically adjust for inflation in increments of $100.

• SIMPLE plans: the catch-up contribution limit is $3500 for 2023 (up $500 over last year).

• Qualified plans: Workers in 401(k), 403(b), and 457(b) retirement plans may now contribute an additional $7500 (on top of the annual federal limit of $22,500) in 2023.

Taxpayers ages 60-63

Starting in 2025, taxpayers who are 60-63 years old will be able to contribute more to their retirement plans as follows:

• Qualified plans: the greater of $10,000 or 150% of the standard catch-up contribution limit for 2024 (indexed annually for inflation).
  • Starting in 2026, the $10,000 will be adjusted for inflation annually.
  • Upon reaching age 64, the regular catch-up contribution limit applies.

• SIMPLE IRAs: the greater of $5,000 or 150% of the SIMPLE IRA catch-up contribution amount, indexed for inflation. 

High-earning taxpayers

For employees with more than $145,000 in wages, SECURE 2.0 now requires them to make catch-up contributions only to Roth accounts. This applies to 401(k), 403(b), and 457(b) government plans (excluding “special catch-up” contributions to 403(b) or 457(b) plans). Therefore, some employees who are 60-63 years old and are eligible to make larger catch-up contributions must make them to a Roth account. Those funds will be contributed with after-tax dollars but will be tax-free upon withdrawal. This rule becomes effective in 2024. 

SEP and SIMPLE IRAs, Qualified Plans: New Roth Feature

Employees may choose to treat employer contributions to these plans as Roth contributions if the employer permits. This is effective for 2023 and later taxable years.

The same goes for qualified 401(k) defined contribution plans, 403(b) plans, and governmental 457(b) plans; participants in these workplace retirement plans may treat employer matching and nonelective contributions as designated Roth contributions if this option is permitted by the plan design. 

Student Loan Payments and Employer Contributions

Effective in 2024, employees who are making student loan payments can also save for retirement. That’s because they may qualify for matching employer contributions in an employer-sponsored retirement plan (without having to make the contributions themselves).

In addition, matching contributions made on qualified student loan payments may be designated as Roth contributions. There are certain conditions regarding employer contributions, so we recommend you consult your plan administrator for guidance on this provision.

Hardship Withdrawals for 401(k) and 403(b) Plans

Employees will be permitted to take emergency distributions from their retirement account of up to $1000 once a year, starting in 2024. These withdrawals are to cover immediate financial needs or unforeseeable emergencies. Examples of these (for which the employee may self-certify with the plan administrator) are medical care, funeral, tuition, and home purchase or certain home repair expenses. The 10% early withdrawal tax will not apply to these distributions. Taxpayers who do not repay the distribution within a certain amount of time will be prohibited from taking another emergency withdrawal for three years. 

529-to-Roth Rollovers

Effective in 2024, some taxpayers will be allowed to roll over a 529 plan they have maintained for at least 15 years to a Roth IRA. There are many requirements and limited circumstances to qualify for this transaction. The lifetime limit on what may be rolled to the Roth IRA will be $35,000. 

401(k) Lost & Found

It is not unusual for employees to lose track of their 401(k) account when changing jobs; nor is it unusual for employers to end up with missing participants—former employees they cannot locate to distribute retirement benefits. The federal Department of Labor will be creating a searchable database within the next two years to help reconnect millions of 401(k) accounts with the individuals who are missing out on their unclaimed benefits.

Qualified Charitable Distributions

A qualified charitable distribution (QCD) is a transaction available to individuals ages 70-1/2 and older who wish to direct funds from a Traditional IRA to a qualified 501(c)3 charitable organization. Currently, the maximum contribution amount allowed is $100,000. This will change in 2024 when the maximum QCD amount will increase based on the inflation rate.

SECURE 2.0 broadens the charitable distribution field this year, with a one-time opportunity to distribute up to $50,000 (indexed for inflation) to fund a charitable remainder unit trust, charitable remainder annuity trust, or a charitable gift annuity.

Contact Next Generation with Questions About Your Self-Directed IRA

Whether your retirement savings are in a self-directed IRA, solo K, or other self-directed retirement plan, the team at Next Generation is here to help. If you have questions about how any of the SECURE Act 2.0 provisions may affect your self-directed plan, contact us at 888.857.8058 or NewAccounts@NextGenerationTrust.com.