SECURE 2.0 Act Changes 401(k), IRA, Roth, Other Retirement Plan Rules

A 2023 budget bill signed by President Biden includes the SECURE 2.0 Act of 2022, which makes major changes to retirement savings plans.

red compass pointing to retirement
(Image credit: Getty Images)

President Biden signed a $1.7 trillion budget bill on December 23, 2022, that includes bipartisan retirement savings legislation: the SECURE 2.0 Act of 2022. SECURE 2.0 is expected to reshape retirement tax incentives for years to come since the retirement savings law makes numerous changes to existing retirement account rules. That includes (but is not limited to), 401(k), 403(b), IRA, and Roth accounts, and some related tax breaks. And those changes could impact your retirement savings and personal finances.

Supporters of the legislation say that the changes in the SECURE 2.0 Act are designed to encourage more workers to save for retirement. Although others have expressed concern that some provisions in SECURE 2.0 primarily benefit high-income earners.

SECURE 2.0 Act Summary: Retirement Savings Plan Rule Changes

Some of the more than one hundred provisions in the SECURE 2.0 Act of 2022 that could impact your retirement savings in the coming year, or years, are briefly highlighted here in this SECURE 2.0 Act summary.

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But stay tuned to Kiplinger for more detailed information on these and other aspects of the 2022 version of SECURE 2.0.

RMD Changes

RMD Age Delay: Under the law as it stands now, you generally must take required minimum distributions (RMDs) from your retirement plan beginning at age 72. SECURE 2.0, 2022, increases the required minimum distribution age to 73 beginning January 1, 2023.

That's a key RMD change this year, but then in ten years, the RMD age will move to 75.

RMDs and Roth 401(k)s: Beginning next year (in 2024), the SECURE 2.0 Act also eliminates RMDs for qualified employer Roth plan accounts. Previously, there was a difference in the rules that applied to Roth 401(k) accounts in employer plans versus Roth IRAs (i.e., the latter were not subject to required minimum distributions).

For more information on the elimination of RMDs for Roth 401(k) accounts in the SECURE 2.0 Act of 2022, see: New RMD Rules: Starting Age, Penalties, Roth 401(k)s, and More.

401(k) Financial Incentives

Small Incentives to Contribute to a Retirement Plan: The Secure 2.0 Act allows your employer to offer small financial incentives (e.g., low-dollar gift cards) to help boost employee participation in a workplace retirement plan. This provision will become effective for plan years after December 2022.

401(k) and 403(b) Withdrawals

Emergency Expense Distributions: Beginning in 2024, under the SECURE 2.0 Act of 2022, you will be allowed to take an early “emergency” distribution from your retirement account to cover unforeseeable or immediate financial needs.

That emergency distribution of up to $1,000, could only be taken once during the year, but won't be subject to the usual additional 10 percent tax that applies to early distributions. But: if you choose not to repay the distribution within a certain time, you won't be allowed to take other emergency distributions for three-years.

Other hardship withdrawals are provided for in the SECURE 2.20 Act including for 403(b) plans. (Currently, distribution rules for 403(b) and 401(k) plans are different, so SECURE 2.0, 2022, would conform those rules.)

Also, under SECURE 2.0, penalty-free withdrawals, on small amounts of money from retirement plans in cases involving domestic abuse, will be allowed.

401(k) Automatic Enrollment

Automatic Enrollment in Retirement Plans: Beginning in 2025, the SECURE 2.0 Act expands automatic enrollment in retirement plans. The rationale for this is that automatic enrollment in 401(k) plans has been shown to increase participation.

With some exceptions for small businesses, the Act requires 401(k) and 403(b) plans to automatically enroll eligible participants, who will then be able to opt out of participation, if desired.

Catch-up Contributions

Higher Catch-up Contribution Limit: Right now, if you are 50 or older you can make catch-up contributions to your retirement plan up to certain limits. SECURE 2.0, 2022, increases those limits, beginning in 2025, to the greater of $10,000 or 50 percent more than the regular catch-up amount if you are 60, 61, 62, or 63 years old. After 2025, those amounts will be indexed for inflation.

Also, beginning in 2024, SECURE 2.0 Act rules impact how eligible workers with incomes over $145,000, make catch-up contributions. (The income threshold will be adjusted for inflation.) 

For more information about the SECURE 2.0 Act and catch-up contributions, see: Catch-Up Contributions to Retirement Accounts Boosted By SECURE Act 2.0.

Student Loans and 401(k)

Employer Fund Match for Student Loan Payments: Under the SECURE 2.0 Act of 2022, your employer can make a matching contribution to your retirement plan account based on your student loan payment amount. This is designed to address the fact that high student loan debt can keep people from saving for retirement. This will become effective in 2024.

Note: Student loan payments are on pause until at least June 2023 and student loan debt forgiveness is currently on hold due to court challenges.

529 Plan to Roth IRA

Roth Rollover Option for 529 Plans: Beginning in 2024, in limited circumstances (i.e., there are a lot of requirements that must be met including that the Roth IRA account must be in the name of the 529 plan beneficiary), some people may be able to rollover a 529 plan that they have maintained for at least 15 years to a Roth IRA.  

Annual limits for the rollover would have to be within the annual contribution limit and there will be a $35,000 lifetime limit on what can be rolled to the Roth IRA.

Saver's Credit to Saver's Match

Saver’s Match: Beginning in 2027, the SECURE 2.0 Act of 2022 replaces the nonrefundable Saver’s Credit for certain IRA and retirement plan contributions with a federal matching contribution that is deposited into your IRA or retirement plan. The so-called saver’s match will be 50% of IRA or retirement plan contributions up to $2,000 per person. However, some income limits, and phase-outs, will apply.

For more information about the saver’s match in the SECURE 2.0 Act, see: Retirement Saver's Tax Credit Converted to "Saver's Match."

Lost 401(k) Accounts

Retirement Savings “Lost and Found”: The SECURE 2.0 Act enables the creation of a searchable database to help people find retirement benefits that they lost track of. The retirement savings “lost and found” will be housed at the Department of Labor and be created within the next two years.

Part-Time Workers and Other SECURE Act 2.0 of 2022 Retirement Plan Changes:

The SECURE 2.0 Act of 2022 contains many more provisions that could impact your retirement savings account (and in turn, potentially your taxes and tax breaks). 

Some of those provisions involve everything from part-time worker access to employer retirement plans, and small business tax credits, to contributions to SIMPLE, and SEP plans. Other provisions address issues surrounding stock ownership and savings bonds. 

Stay tuned to Kiplinger for more details on the various aspects of SECURE 2.0.

$1.7 Trillion Spending Bill: 2023 Omnibus Budget Bill

And if you’re curious about Congress’ spending…the $1.7 trillion fiscal year 2023 omnibus appropriations bill contains over $770 billion for non-defense spending. That includes increased funding for nutrition, and affordable housing programs, healthcare research, education, and childcare.

There’s also funding in the budget bill for assistance to Ukraine, and NATO allies, and more than $40 billion for assistance to people dealing with U.S. natural disasters like wildfires, flooding, and hurricanes.

The near two trillion-dollar spending bill also increases funding for Veteran Administration medical care and allocates $858 billion in defense spending.

Kelley R. Taylor
Tax Editor, Kiplinger.com

With more than 20 years' experience as an in-house legal counsel and business journalist, Kelley R. Taylor has contributed to numerous national print and digital magazines on key issues spanning education, law, health, finance, and tax. Kelley particularly enjoys translating complex information in ways that help empower people in their daily lives and work.