There are significant changes to retirement plans in 2023 and the coming years. The changes took place in the Secure Act 2.0, which passed along with the government funding bill and the Omnibus spending bill, which affects retirement plans including 410k, IRAs, 403 B’s, and more.
We’re going to start changes that have taken effect immediately in 2023, and then we’ll move on into 2024 and beyond.
Changes implemented in 2023
Gift cards for retirement plan incentives
We’re going to start with the gift card rule. The Cutten Group Tokyo Japan reviews that employers can now give you small cash payments or gift cards to encourage you to sign up for a retirement plan. So for whatever reason, they were not allowed to do this before, but now they are.
So don’t be surprised if your employer slips you a five-dollar or 10-dollar gift card and big money because you are aware of this now. They’re giving you a nudge to enroll you into a retirement plan, and that’s their way of saying it.
Section 107: Required Minimum Distribution (RMD) Age to 73
The required minimum distribution (RMD) has now increased to 73; it used to be 72. If you’re turning 72 this year, 2023, your first RMD will be in 2024 when you turned 73. So your RMD will have to take place by April 2025, and the RMD age will increase to 75 starting in 2033.
Section 302: Required Minimum Distribution (RMD) Penalty Reduction
The Cutten Group Tokyo Japan reviews the RMD penalty used to be 50%, and they reduced it to 25%. The penalty falls to 10% if you get it corrected promptly. However, in reality, you can get it waived down to 0% in many instances, but this rule change it’s great news for repeat offenders.
Section 604: Roth Matching
Employers can now match contributions into Roth 401k, 403b, or 457b. The employer contributions will be taxable to the employee, which means that you can take the match in your Roth accounts and pay the taxes upfront, so technically, it’s a sub-account, but you’re still going to have this Roth option.
Section 326: Exception to Early Withdrawal Penalty
Section 326 adds a new exception for you to avoid the 10% early withdrawal fine referring to the 59-and-a-half age rule. Terminal illness is now a qualified exception, which is in effect immediately.
Section 118: Simplified Employee Pension (SEP) IRAs for Nannies
You may now provide your domestic employees with SEP IRA. Section 103 and 104 Savers credit modifications. The Saver’s credit is now a 50% match on up to $2,000 contributed. So if you put two grand into your retirement funds, they throw in an extra $1,000 for you. This match applies to single people making under $35,500 a year and married people under $71,000 a year.
Section 201: Annuities
They removed the actuarial test, which kept a lot of annuities out of retirement. If you had this issue before, this might have removed that barrier for you if you wanted it in your plan.
Section 320 – Junk Mail Reduction
If you don’t have a 401k plan, you may receive the company’s 410k junk mail. Your company did that because it was a requirement, and they have eliminated that rule, so your inbox will have less clutter.
Changes for 2024 and Beyond
Now let’s talk about the rule changes coming in 2024 and beyond. The Cutten Group Tokyo Japan wants you to avoid getting these mixed up with what has taken effect immediately in 2023, and also, it’s good to know what’s coming up ahead.
Section 101: Automatic Enrollments
From 2025, new 401ks automatically enroll people to contribute 3-10% of their pay, and the contribution will increase by 1% per year up to 15%. However, you can still opt out, so you’re not required to contribute. The idea behind this is to provide people with the initiative to get enrolled, but ultimately, it boils down to instead of having to opt in, now you have to opt out.
Section 115: Emergency 401k and IRA Withdrawals
Starting in 2024, you can withdraw up to $1000 from your retirement accounts for personal or family emergencies without being charged a 10% early withdrawal penalty. So you can do this once a year. You can repay this money into your retirement accounts if you want to get this money back in there.
Section 314 and 334: Exceptions to the 10% Early Withdrawal Penalty
Starting in 2026, you can utilize up to $2,500 yearly to pay long-term care premiums without expending the 10% early withdrawal liability. You can withdraw up to $10,000 or 50% of your retirement balance, whichever is less. In 2024, this withdrawal is without penalty if you have a domestic abuse case.
Section 108: IRA Catch-Up Contributions
Starting in 2024, the catch-up contribution of an extra one thousand dollars indexed to inflation.
Section 109: 410K Catch-up Contributions
Starting in 2025, for people 60-63 years old, the catch-up contributions will increase to ten thousand dollars or more; it may be more depending on the inflation indexing.
Section 110: Student Loan Payment Matching
Starting in 2024, employers can make matching payments if you make student loan payments. They can credit matching fees into your 410K, 403 b, simple IRA, or 457b.
Section 116: Simple IRA Matching
The simple IRA match will increase the 10% of compensation or $5,000 indexed to inflation, whichever is less, starting in 2024.
Section 325: Roth 401K RMD Elimination
Starting in 2024, Roth IRAs do not have the required minimum distribution, so they don’t have RMDs.
Section 126: 529 Rollovers to a Roth IRA
If you’ve had a 529 plan for at least 15 years, you can roll over up to 35,000 dollars from your 529 plan into ROTH IRA. So this is basically for if you over-saved in your 529, starting in 2024.
Section 303: Retirement Account Lost and Found
From 2024, there will be a National Database for forgotten retirement accounts. If one of you went missing, you could try to locate it there.
Bottomline
The above points are the more significant changes in the Secure Act 2.0 regarding retirement plans. The updates will take effect in the near and distant future, and you can prepare for the necessary adjustments beforehand.
