secure 2.0 act

Understanding the Secure 2.0 Act

To help as many Americans as possible increase their retirement savings, Congress passed the Secure Act 2.0 on December 23, 2022. The Secure Act 2.0 is part of a larger push by the Senate and House of Representatives to reform retirement planning by making it easier for people to add to their 401k, 403b, or Independent Retirement Account (IRA) during the last several years of their working lives.

Extending the Original Secure Act from 2019

The term secure in this act stands for Setting Every Community Up for Retirement Enhancement. The original Secure Act, which passed almost four years ago, gave people improved opportunities for retirement savings. Secure Act 2.0 adds an additional 92 provisions to encourage working people to save more for their retirement.

The new act also improves current rules related to retirement and makes it possible for employers to reduce their costs of setting up retirement savings plans for employees. As a business owner of a company with less than 100 employees, you owe it to yourself to learn how the Secure Act 2.0 benefits both you and your workers.

Key Provisions of the Secure Act 2.0 Recently Signed into Law

Of the 92 provisions in the new Secure Act, some have already taken effect and others will take effect on January 1, 2025. ASAP Payroll highlights several provisions that should interest employers and employees below.

Automatic Enrollment

If you start new retirement plans between now and December 31, 2024, the Internal Revenue Service (IRS) requires you to enroll new employees in the plan at a minimum return rate of three percent on each voluntary payroll deduction they make. You cannot contribute more than 10 percent as an employer with 11 to 99 employees.

Two exceptions to the automatic enrollment rule exist. The first is that you do not have to offer between a three and 10 percent company match if you have been in business for less than three years. You also don’t have to provide this benefit if you have 10 or fewer employees. According to stipulations of the Secure Act 2.0, the amount you match each employee’s elected deferral increases by one percent each year until it reaches 10 percent, or you elect to set the maximum matched amount at 15 percent.

Increase in Catch-Up Contributions

People who are at least 50 years old could already make catch-up contributions to their 401k, 403b, or IRA before the Secure Act 2.0 went into effect. Those who are currently between the ages of 50 and 59 can contribute up to $7,500 pre-tax dollars every year toward retirement savings. Workers who are between 60 and 63 years old can set aside up to $22,500 every calendar year if they are behind on their retirement savings compared to other workers in the same age bracket.

Increase in Required Minimum Distribution Age

Prior to the passage of the Secure Act 2.0, participants in 401k and 403b retirement savings accounts had to begin taking mandatory withdrawals by age 72. That will increase to 73 in 2023, and the age limit will increase again to 75 by 2033. The penalty for not taking a required minimum distribution by age 73 decreased from 50 percent to 25 percent this year, with some accounts incurring only a 10 percent penalty.

Roth IRA participants will also notice changes regarding age limits and required minimum distributions. Starting in 2024, Roth IRA account holders are no longer subject to a required minimum distribution or age limit for the remainder of their lives.

Retirement Savings Options for Long-Term Part-Time Employees

Under the updated Secure Act, employers must make retirement savings plans available to part-time employees who meet specific qualifications. They must have worked at least 1,000 hours during the past calendar year or at least 500 hours per year for two consecutive calendar years. Part-time employees who are at least 50 years old are also eligible to make catch-up contributions to their 401k, 403b, or IRA.

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