Secure Act 2.0
The SECURE Act 2.0 raises the RMD age, increases catch-up contributions, reduces penalties, and expands Roth options (including no lifetime RMDs for Roth accounts). It also allows $1,000 penalty-free emergency withdrawals, new emergency savings accounts, and up to $35,000 rollovers from 529 plans to Roth IRAs
SECURE Act 2.0
At the end of 2022, Congress passed the SECURE Act 2.0, which introduced many changes favorable to individuals. The major provisions include:
1) Higher RMD Starting Age
Traditional IRAs, individual retirement annuities, and employer plans such as 401(k), profit-sharing, 403(b), and 457(b) accounts are subject to Required Minimum Distributions (RMDs).
Before SECURE 2.0: RMDs began in the year an individual turned 72, with the first withdrawal allowed to be delayed until April 1 of the following year (the “Required Beginning Date,” or RBD). For employer plans, the RBD could be postponed until April 1 of the year after actual retirement if the participant did not own more than 5% of the employer.
After SECURE 2.0:
Those turning 72 between 2023 and 2032 begin RMDs at age 73.
Those turning 74 in 2033 or later begin at age 75.
Exception rules for still-working individuals remain in effect.
The new ages do not apply to individuals who already reached 72 before 2023.
2) Reduced RMD Penalties
Before: Failing to take an RMD resulted in a 50% penalty on the shortfall.
Now: The penalty is reduced to 25%, and further reduced to 10% if corrected during the “correction window.”
The correction window ends at the earliest of:
The day IRS mails a notice of penalty;
The day IRS assesses the penalty; or
The last day of the second tax year following the year of the missed RMD.
3) Bigger Catch-Up Contributions
For 401(k), 403(b), and 457(b): age 50+ participants may make catch-up contributions (currently $7,500 in 2024, indexed).
For SIMPLE plans: $3,500 catch-up, indexed.
Beginning 2025: Participants aged 60–63 may contribute the greater of:
$10,000 ($5,000 for SIMPLE), or
150% of the 2024 catch-up limit ($11,250 for 401(k)).
4) Controversial Roth Catch-Up Requirement
A SECURE 2.0 rule (IRC §414(v)(7)) requires participants with prior-year FICA wages over $145,000 (indexed) to make catch-up contributions only to Roth accounts.
Concern: If the employer plan lacks a Roth option, affected employees could not make catch-up contributions at all.
Relief: IRS Notice 2023-62 delayed implementation until 2026.
5) Penalty-Free Withdrawals for Emergencies
Up to $1,000 annually may be withdrawn penalty-free for emergency expenses (once per year).
Withdrawals may be repaid within 3 years; if not repaid, no further emergency withdrawals are allowed during that period.
6) Retirement Plan Emergency Savings Accounts
Employers may offer linked emergency savings accounts for non-highly compensated employees.
Features: automatic enrollment up to 3% of pay, maximum balance $2,500, after-tax contributions, at least monthly withdrawals allowed, and rollover to Roth accounts or IRA at termination.
7) Sole Proprietor First-Year 401(k) Deferral Election
Sole proprietors can retroactively make elective deferral contributions for the first plan year up to the tax filing deadline (excluding extensions).
Applies to plans established after Dec. 29, 2022.
Example: A new plan starting Jan. 1, 2024 → contributions allowed until Apr. 15, 2025, deductible on 2024 Form 1040.
8)Employer Contributions as Roth
Employers may allow employees to receive matching or non-elective contributions into designated Roth accounts.
Such contributions are immediately 100% vested.
Note: These contributions are after-tax and included in taxable wages.
9) No RMDs for Roth Accounts in Employer Plans
Beginning 2024, designated Roth accounts in employer plans are no longer subject to lifetime RMDs. Beneficiaries remain subject to RMD rules after the participant’s death.
10) SEP and SIMPLE Roth Options
Beginning in 2023, SEP-IRAs and SIMPLE-IRAs can now offer Roth accounts.
11) 529 to Roth IRA Rollovers
Beginning in 2024, up to $35,000 lifetime can be rolled over tax-free from a 529 plan to the same beneficiary’s Roth IRA.
Conditions:
529 account must have been open for at least 15 years.
Subject to annual IRA contribution limits ($7,000 in 2024 if under 50).
Beneficiary must have compensation equal to or greater than rollover amount.
Contributions (and earnings) made within the last 5 years are excluded.
Uncertainty remains on whether changing beneficiaries resets the 15-year clock (awaiting IRS guidance).