SECURE 2.0 Aims to Brighten the Future for Retirement Savers

The $1.7 trillion appropriations bill passed by Congress at the end of last year included some notable provisions affecting workplace retirement plans and IRAs. Dubbed the SECURE 2.0 Act of 2022, the new legislation builds on the sweeping Setting Every Community Up for Retirement Enhancement Act that was passed in 2019.

Here’s an overview of the Act’s changes to the complicated rules that govern tax-advantaged retirement accounts. The following provisions — though far from a complete list — are intended to help workers save more money for retirement and let retirees leave their savings untouched and untaxed for longer.

Looser RMD Rules

The 2019 SECURE Act raised the age at which retirement savers must begin taking taxable distributions from their traditional IRAs and most work-based retirement accounts to 72. SECURE 2.0 raises that age again to 73 beginning in 2023 (for those who reach age 72 after December 31, 2022) and to 75 in 2033.

Current law requires those who fail to take their full RMD by the deadline to pay a tax of 50% of the amount not taken. The new law reduces that tax amount to 25% in 2023; the tax is further reduced to 10% if account holders take the full required amount and report the tax by the end of the second year after it was due and before the IRS demands payment.

Bringing Roth 401(k)s and similar employer plans in line with Roth IRAs, the legislation eliminates the requirement for savers to take minimum distributions from their workplace Roth accounts (starting in 2024).

Expanded QCDs

The amount eligible for a qualified charitable distribution from an IRA ($100,000) will be indexed for inflation starting in 2024. In addition, beginning in 2023, investors will be able to make a one-time charitable distribution of up to $50,000 from an IRA to a charitable remainder annuity trust, charitable remainder unitrust, or charitable gift annuity.

Not all charitable organizations are able to use all possible gifts, so it is prudent to check first. The type of organization selected can also affect the tax benefits the donor receives.

Rising Catch-up Contributions

Individuals who are age 50 and over can make an additional catch-up contribution of $1,000 to their IRA. Starting in 2024, this amount will be indexed annually for inflation, similar to employer plan catch-up contributions (limited to $7,500 in 2023). Also, starting in 2025, the catch-up contribution for people age 60 to 63 will increase to a minimum of $10,000 for 401(k)s and similar workplace plans ($5,000 for SIMPLE plans). However, beginning in 2024, all catch-up contributions for workers with incomes above $145,000 will be after-tax (Roth) contributions.

New Penalty Exceptions

Distributions from retirement savings accounts are generally subject to ordinary income tax. In addition, distributions prior to age 59½ also may be subject to an early-withdrawal penalty of 10%, unless an exception (such as death or disability) applies. SECURE 2.0 ushers in several new exceptions to the early-withdrawal penalty, including an emergency personal expense, terminal illness, domestic abuse, to pay long-term care insurance premiums, and to recover from a federally declared disaster. Amounts, rules, and effective dates differ for each circumstance, with some exceptions effective immediately.

Changes to Employer Plans

Beginning in 2025, the Act requires most new employer-sponsored plans to automatically enroll employees with contribution levels between 3% and 10% of income, and it automatically increases their savings rates by 1% each year until they reach at least 10% (but not more than 15%) of income. Workers will be able to opt out of the programs.

The new law permits employer matches to be made to Roth accounts. Currently, employer matches must go into an employee’s pre-tax (traditional) account. This provision takes effect immediately; however, it may take time for employers to amend their plans to include this feature.

Beginning in 2024, the legislation permits employers to automatically enroll non-highly compensated employees into emergency savings accounts where they can set aside up to $2,500 (or a lower amount that an employer stipulates) in a Roth-type account. Savings above this limit can go into a Roth retirement account, if the employee has one, or would not be accepted. Employers may also help workers who are making qualified student loan repayments to simultaneously save for retirement by investing matching contributions in a retirement account in their name.

Rolling 529 Plans to Roth IRAs

When parents or grandparents contribute to a 529 college savings plan for a student, the investment earnings accumulate on a tax-deferred basis, and withdrawals are tax-free as long as they are used for qualified education expenses. But for withdrawals not used for qualified education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% tax penalty. Thus, when there is money left over in a 529 account that won’t be used for a family member’s college expenses, the owner may dread the tax bill that would come from cashing out and repurposing the money.

Fortunately, starting in 2024, account beneficiaries will be able to directly roll over up to $35,000 from 529 plan accounts to Roth IRAs, provided the 529 accounts were open for at least 15 years. The rollover amounts would be subject to Roth IRA annual contribution limits ($6,500 in 2023 and indexed for inflation thereafter). Distributions from the Roth IRA will be tax-free and penalty-free as long as the 5-year holding requirement has been met, and they are taken after age 59½ (or an exception applies).

As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. The tax implications of a 529 savings plan should be discussed with your legal and/or tax professionals because they can vary significantly from state to state. Also be aware that most states offer their own 529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers. These other state benefits may include financial aid, scholarship funds, and protection from creditors.

Before investing in a 529 savings plan, please consider the investment objectives, risks, charges, and expenses carefully. The official disclosure statements and applicable prospectuses — which contain this and other information about the investment options, underlying investments, and investment company — can be obtained by contacting your financial professional. You should read these materials carefully before investing.

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Matthew Englade

Matt graduated in 2008 from Southeastern Louisiana with a bachelor's degree in business. He started his career in financial services, working as a staff member with Delahaye and Associates, where he eventually became a partner.

In 2022 he formed Englade Insurance and Financial Services, where his primary focus is serving his client’s best interest. “But even if you should suffer for what is right, you are blessed.” 1 Peter 3:14

Matt is a resident of Central, LA and enjoys spending time with his wife, Angela, and three children. He also enjoys coaching middle school basketball and giving back to his local church.

Jacob Ashford

Jacob is currently a student at Southeastern Louisiana University and is studying in the College of Business as a Marketing Major.

Jacob pursues his career by working with Matt and Angela in their mission to spread financial sustainability with their current and future clients. He also donates his time to the Southeastern's College of Business by participating in numerous career services for the city of Hammond.

Having two younger sisters, Jacob understands the importance of protecting family values and leading a path to a secure future.

Nathan graduated from Texas A&M University Class of 2006 with a degree in Agriculture Leadership & Development. Nathan has been in public service as a firefighter since 2008. In addition he and Katherine have started, operated, purchased, and sold multiple small business’. Through his experiences; Financial Services has been a lifelong pursuit for Nathan and he is excited to be a resource for people like you, your family, and your business.

Angela Englade

Angela graduated from Southeastern Louisiana University with a Bachelor of Science degree in Nursing. She worked as a Labor and Delivery nurse for 14 years. She decided to continue her love for caring for others through helping people obtain financial health and wellness.

She joined Englade Insurance and Financial Services to guide Matt's clients on becoming aware of potential roadblocks and achieve financial peace of mind. In her free time, she enjoys spending time with her family and exercising.

Along with Matthew, she volunteers many hours to local charities to give back to the community.

Eve is happily married to her best friend Rick since 2012. They enjoy recreational trips like hiking and camping, visiting the beaches in the Gulf of Mexico, and trips to Walt Disney World. They are active in their congregation, donating their time and effort to help run the Audio/Visual presentations for services. She is grateful for all God has given her and believes all the glory goes to Him.

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Matt is a board member of CALEF and is involved committed to its long-term success. The mission of CALEF is to provide police, fire and EMS personnel with the safety equipment they need to serve and protect with excellence. We provide all-day rifle protection and other safety equipment to local law enforcement, fire and EMS personnel. CALEF believes that communities are safer and stronger when local law enforcement, fire and EMS personnel are properly equipped to do their job.

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Matt and Angela are active members of the church and school communities of St. Alphonsus Liguori Catholic Parish. Their mission is to form students in the Catholic Faith spiritually, academically, physically, and culturally in an environment of academic excellence. St. Alphonsus Liguori Catholic School is committed to providing a positive, faith-filled environment for children to learn. Our comprehensive curriculum is designed to promote academic excellence and the spiritual growth of our students, coupled with an appreciation of how service to others makes the world a better place. We strive to expand their potential to become leaders.

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