by Among the many provisions of the federal appropriations bill passed by both houses of Congress last week was a section known as the SECURE 2.0 Act. Intended to support employee financial readiness for retirement, the administrative changes made to employer retirement plans by the SECURE 2.0 Act may lead employees to adjust how and when they invest in available 401(k) and 403(b) plans.
Provisions that may affect employee retirement planning include updates on opportunities to increase annual contributions and when a retirement plan participant must begin withdrawals from a retirement plan:
- Increased catch-up contributions for some employees: Starting January 1, 2025, employees ages 60 through 63 will be able to make catch-up contributions of up to $10,000 annually to workplace retirement plans. There are limitations if the employee earns more than $145,000 in the prior calendar year. Under those circumstances, the catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars.
- New trigger ages for taking RMDs: Building on the SECURE Act of 2019, the new law further increases the age at which retirees must take required minimum distributions (RMDs) from their retirement plans. For employees turning 72 years of age in 2023 or later, the trigger age for taking RMDs goes from 72 to 73 years of age. Younger employees may be interested to know that the age for taking RMDs starts at age 75 in 2033.
- Lower financial penalty for failing to take an RMD: The penalty paid for missing an RMD will decrease from 50% to 25% of the RMD amount missed. Roth accounts in employer retirement plans will be exempt from the RMD requirements starting in 2024.
With more than 100 adjustments or changes to retirement plan regulations, the SECURE 2.0 Act also has many provisions of interest to employers. Some changes are mandatory for plan sponsors, while other modifications expand available options for employers to include in plans to better support employee retirement planning. Helpful summaries of the plan sponsor impact of the law can be found on websites offered by several benefit advisors including Mercer, a business of Marsh McLennan, an international professional services firm in the areas of risk and strategy: https://www.mercer.com/our-thinking/law-and-policy-group/alert-secure-2-0-retirement-reforms-set-to-become-law.html.
