The SECURE Act: Key Changes and Updates
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was originally signed into law on December 20, 2019. The Act simplifies the process for businesses to establish “safe harbor” retirement plans, making them more cost-effective and easier to administer. Additionally, the Act pushed the age for required minimum distributions (RMDs) from 70 ½ to 72, and allowed contributions to be made indefinitely. Most non-spouse beneficiaries of inherited IRAs are now required to take all distributions within 10 years.
SECURE Act 2.0: What’s New?
SECURE Act 2.0, passed in December 2022, modified many of the original Act’s provisions, impacting traditional IRAs, Roth IRAs, and 401(k)s. More changes are set to take effect in 2025.
Catch-Up Contributions
Individuals aged 60 to 63 will be able to increase their catch-up contributions into tax-advantaged retirement savings accounts. Currently, employees aged 50 and over can contribute an additional $7,500 to their 401(k)s in 2024, with a total contribution limit of $30,500. Starting in 2025, participants aged 60-63 will be allowed to contribute the greater of $10,000 or 150% of the 2024 catch-up contribution limit, adjusted for inflation.
Simple IRA Changes
For those aged 60-63 with Simple IRAs, the current limit for annual employee deferrals is $16,000 in 2024, with a $3,500 catch-up allowed for individuals aged 50 and above. In 2025, individuals aged 60-63 will be able to make catch-up contributions of the greater of $5,000 or 150% of the age-50 catch-up limit, with cost-of-living adjustments beginning in 2026.
Automatic 401(k) Enrollment
Starting in 2025, automatic enrollment in 401(k) plans will be required for new employees, with initial contribution rates between 3% and 10%. Contributions will increase by 1% annually until reaching at least 10%, but not exceeding 15%. Although automatic enrollment is mandated, employees can opt out or adjust their contribution rate.
Inherited IRA 10-Year Rule
The 10-year rule applies to beneficiaries who inherited an IRA from someone who passed away on or after January 1, 2020. Previously, beneficiaries could stretch distributions over their lifetime. However, now most beneficiaries must take all distributions within 10 years. Exceptions apply to surviving spouses, individuals with disabilities, and minor beneficiaries, who must take distributions by age 28.
The IRS delayed implementing final rules, offering transitional relief for beneficiaries who didn’t take RMDs from 2021 to 2024. Starting in 2025, a 25% penalty will be imposed on those who fail to take their RMD. Beneficiaries still need to take all distributions within 10 years of the account owner’s death, even if RMDs are delayed until 2025.
Stay Informed to Avoid Penalties
It’s essential to stay updated on the new rules to avoid penalties and excise taxes.
