The SECURE Act 2.0 is now law and is intended to strengthen and expand the original SECURE Act, which was signed into law in December 2019. The original SECURE Act made significant changes to retirement savings and distribution rules, including raising the age for required minimum distributions from 70.5 to 72 and allowing long-term, part-time employees to participate in 401(k) plans.
The Act 2.0 builds upon these changes and includes new provisions aimed at increasing access to retirement savings plans, providing tax incentives for small businesses to offer retirement plans, and enhancing retirement security for older Americans.
The SECURE Act 2.0 will raise the age for required minimum distributions (RMDs) from 72 to 75 in (2033). Starting this year, it will raise RMD age to 73. This means that individuals would not be required to start taking distributions from their retirement accounts until they reach the age of 73 (75 in 2033). This change is aimed at allowing individuals to keep their savings in tax-advantaged accounts for longer, which can help to increase the overall size of their nest egg and provide more income in retirement.
This change would be especially beneficial for those who may have a longer life expectancy and therefore need their savings to last longer in retirement. Additionally, it could also help to alleviate some of the financial strain that RMDs can place on retirees, especially during times of market volatility or economic downturn.
The SECURE Act 2.0 does not specifically address Roth conversions, but the proposed change to the age for required minimum distributions (RMDs) from 72 to 75 could have an impact on Roth conversions for some individuals.
Roth conversions are the process of converting traditional IRA assets to a Roth IRA, which allows the assets to grow tax-free and be withdrawn tax-free in retirement. One of the benefits of Roth conversions is that they can be done at any age, and they are not subject to RMDs.
Since the changes will raise the age for RMDs to 75 (eventually), it could make Roth conversions an even more attractive option for some individuals.
However, it's important to note that Roth conversions may not be the best option for everyone, and it's always best to consult with a financial advisor or tax professional before making any decisions about Roth conversions. The tax implications and the effect on your overall retirement plan should be carefully evaluated.
Another important provision of the SECURE Act 2.0 is the creation of a new type of savings plan, called a "Universal Savings Account" (USA). USA's would function similarly to Roth IRA's, allowing contributions to be made on an after-tax basis with the ability to withdraw the money tax-free in retirement. The goal of this new type of account is to encourage more people to save for retirement.
The Act also includes provisions aimed at enhancing retirement security for older Americans. This includes increasing the amount of catch-up contributions and allowing individuals to continue making contributions to their retirement accounts past age 72.
Having the ability to move your employer savings plan can be a big benefit, so the act includes provisions to improve the portability of retirement savings, making it easier for individuals to roll over their retirement savings from one employer to another.
Overall, the SECURE Act 2.0 is a comprehensive package of measures aimed at increasing access to retirement savings plans, providing tax incentives for small businesses to offer retirement plans, and enhancing retirement security for older Americans.
Published by Stewart Fields, CFP®
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