What's In Secure 2.0 Act: Expanding Coverage and Increasing Retirement Savings

OMG! Retirement! 14 Jan 2023

The SECURE 2.0 Act, also known as H. R. 2954, went into effect this year. Do you know what's in it? And how it may or may not benefit you? Well, let's find out.

Key aspects:

Required Minimum Distributions (RMDs) increases to age 73 in 2023 and to 75 in 2033.
Penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely manner for IRAs.
Starting 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.
Catch-up contributions will increase in 2025 for 401(k), 403(b), governmental plans, and IRA account holders.
Defined contribution (DC) retirement plans will add an emergency savings account associated with a Roth account.
Employers who start new retirement plans after December 29, 2022 will, beginning in 2025, be required to automatically enroll employees in their retirement plan at a rate of at least three percent, but not over 10 percent of eligible wages. Employees may opt out.
Beginning in 2025, for new retirement plans started after December 29, 2022, contribution percentages must automatically increase by one percent on the first day of each plan year following completion of a year of service until the contribution is at least 10 percent, but only 15 percent of eligible wages. Exceptions apply for governmental and church plans, businesses with 10 or fewer employees, and employers that have been in business for less than three years.

One exciting aspect of the Secures 2.0 Act for me is the provision to rollover up to $35,000 from unused 529 plans to the owners Roth-IRA account. This, however, is limited by the Roth-IRA contribution limits for any year. The act says, and I agree, why should families be penalized for saving for college savings if the beneficiary has found an alternative way to pay for their education?

Main stipulations for the 529 provisions in Secure 2.0 Act:

Once in a lifetime of the 529 Plan - Up to $35,000 may be rolled over.
529 account must be open for over 15 years
Subject to Roth-IRA annual contribution limits

I didn't cover every aspect of this Act. If you want to read the full 140-page document, you can find it here on congress.gov.

Why is this Act Important for America?

Good question and I'm glad you asked. Look at the graph below, besides from it being sad and upsetting, it highlights an enormous problem for America. We don't save enough for our retirement and I think the SECURE 2.0 Act will force us to save and invest. Although an employee can opt out of these changes, I hope no one does. If they do not force us to save earlier in our lives, then we become a liability to America's taxpayers later in retirement. In order to avoid an OMG! Retirement! moment, pay yourself first, albeit your future self. We don't have an option here. No one else can take care of you and your family like you can, so why not set yourself up for success and start saving now? We will go into detail later what kind of saving/investing is recommended at various levels of one's career.

Another reason I think this act will be good for America is because of the automatic retirement saving provisions and annual increments of those investments. This will be a tremendous boon for the stock market starting in 2025, as most of retirement portfolios are invested in mutual funds and ETFs. Again, if you're a long-term investor, this is definitively a good thing for you and your retirement portfolio.