Americans are not prepared for retirement and the government is taking notice. On December 23, 2022, Congress passed the Consolidated Appropriations Act, a sweeping $1.7 trillion bipartisan budget bill that included 92 new provisions to promote and improve retirement plans known as the Secure 2.0 Act of 2022. 

The Secure 2.0 Act of 2022 makes improvements to the Secure Act of 2019, aiming to make retirement plans and savings more accessible and to preserve retirement income. Most notable is that the Act does not focus solely on one area, like required minimum distributions, for instance. The bill is vast in terms of its socioeconomic reach, aiming to improve access to ABLE accounts for special needs individuals and assets held within 529 plans. 

Let’s break down some of the most notable provisions of the Secure 2.0 Act. 

Automatic Enrollment 

Before Americans can begin their retirement journey, they must first establish a retirement account. Section 101 of the Act expands automatic enrollment by requiring 401(k) and 403(b) plans to automatically enroll participants upon eligibility. The initial automatic enrollment requires a minimum contribution of 3% and not more than 10%. Following the first year of enrollment, the plan will automatically increase contributions by 1% until it reaches 10%, but must not exceed 15%. 

The Act even reverses a previous law that prohibited immediate financial incentives, like gift cards, to motivate individuals to contribute to an employer sponsored 401(k). With Section 113, employers may now offer their employees “de minimis financial incentives” that are not paid for with plan assets, like low-dollar gift cards or other small priced incentives. This is effective upon enactment of the Act. 

Although automatically enrolled, employees may opt-out at any time. There are exceptions for small businesses under 10 employees, businesses with less than 3 years of service, church plans, and government plans. This requirement is effective after December 31, 2024. 

Required Minimum Distributions

Previous law required Americans to begin withdrawing required minimum distributions (RMD) from their retirement accounts annually starting at age 72. With the passage of Secure 2.0 Act, legislators have increased the RMD age to 73 in 2023 and another jump to 75 in 2033. 

With the increase in age requirements, legislators also considered how to further reduce the financial burden related to RMDs. If the plan owner fails to withdraw the RMD at age 73, according to the timeline assignment by the IRS, the excise tax penalty is reduced from 50% to 25% and further reduced from 25% to 10% if the RMD is corrected within a timely manner. 

The IRS provides guidance on how to calculate your distribution based on your life expectancy. 

Modified RMD Rules for Special Needs Trust

The original Secure Act of 2019 had some ambiguity around who could be named beneficiary of a special needs trust following the death of the special needs individual. The Special Needs Trust Improvement Act was included within the Secure 2.0 Act under Section 337 and now allows charities to be named as the remainder beneficiary of a special needs trust receiving retirement assets. This provision went into effect upon passage of the Act. 

Withdrawals for Emergency Expenses 

Section 115 of the Act allows for a once annual $1,000 distribution from a 401(k) or IRA for emergency purposes, without the 10% penalization. The emergency distribution can be repaid within a period of 3 years, but if unpaid, the taxpayer may not take another distribution until the 3 year repayment period ends. 

The Act does not go in depth on what qualifies as an “emergency expense”. This section goes into effect after Dec 31, 2023. 

Emergency Savings Accounts

With concern over the lack of liquid emergency funds, legislators passed Section 127 giving employers the option to offer “non-highly compensated employees” a pension-linked emergency savings account. The savings account is linked to the employee’s Roth defined contribution plan, so once the $2,500 cap is reached any further contributions will be rolled into their retirement account. Employees may allocate no more than 3% of their salary to the savings account and upon separation from the employer the account can be liquidated or rolled into their Roth defined contribution plan or IRA. 

Catch-Up Contributions

Another major improvement is the increase in catch-up contributions for those ages 60-63 to up to $10,000 annually if the plan is an employer sponsored 401(k) starting in 2025. The increased amounts are indexed for inflation starting in 2025, as well. 

529 Plans 

In the official summary from the Secure 2.0 Act, legislators remarked, “families who sacrifice and save in 529 accounts should not be punished with tax and penalty years later if the beneficiary has found an alternative way to pay for their education. They should be able to retain their savings and begin their retirement account on a positive note.”

The Secure 2.0 Act now allows assets from 529 plans to be rolled into a ROTH IRA for the beneficiary. This removes the requirement to use the investments strictly for educational purposes after a 15-year waiting period from the 529 plan creation date. 

While this is an excellent opportunity for families who have opted out of educational endeavors, the update still comes with some very specific limitations. First, beneficiaries cannot roll over the entirety of the plan at once. Contributions from the 529 plan to the ROTH IRA must not exceed the $6,500 yearly limit. Furthermore, the beneficiary cannot roll over more than $35,000 total. 

Given the newness of the law, experts and planners alike have many unanswered questions. Will the 15-year waiting period need to restart if the beneficiary is changed on the plan? Unclear. What we do know is that the rollover contributions are not subject to the annual income limits

This change becomes effective with respect to distributions after December 31, 2023. 

ABLE Accounts

ABLE accounts offer a tax benefit specifically designed for savings and investment plans for special needs individuals. Previously, an individual was only eligible for an ABLE account if the onset of the disability began prior to age 26. Now with the passage of the Secure 2.0 Act, individuals are eligible for an ABLE account so long as the disability occurs before the age of 46. 

While this improvement will help millions, particularly those who have served within the military, the provision does not take effect until 2026. 

Student Loan Debt

For those overwhelmed with student loan debt, Section 110 of the Secure 2.0 Act is for you starting in 2024. This provision permits an employer to offer a matching contribution under a qualifying retirement account while the employee makes a qualified student loan payment. 

Part-Time Worker Coverage

A huge win for part-time workers comes in the form of Section 125, which allows long-term, part-time employees access to employer-sponsored retirement plans. Except in the case of a collective bargaining plan, employers who offer 401(k) plans as part of their benefit package may offer part-time employees who have completed 1 year of service at 1,000 hours or 2 years of service with 500 hours. This provision goes into effect starting January 2025. 

There are additional provisions within the Act that may be relevant to you. 

And while the Secure 2.0 Act is rife with provisions that will greatly improve retirement for millions of Americans, there is still work to be done. Before the ink dried on President Biden’s official signature to sign the bill into law, many were calling for a Secure 3.0 Act. 

It may be years before we see a host of provisions jam packed into one bill like the Secure 2.0 Act, so for now we recommend consulting with your financial advisor to understand how these provisions affect your retirement plan. Connect with our team of experienced, qualified investment advisors to learn more about how the Act can benefit you or your clients. 


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Jared Ong

Jared Ong oversees portfolio management, trading and technology. He previously worked at the Capital Group as a business systems analyst where he was integral in improving the trade operations group’s equity, fixed income, and foreign exchange trade processes. A graduate from Brigham Young University, Jared holds a Bachelors in Music. In his spare time, he enjoys composing and arranging music.