3 things to know about Secure 2.0 for financial professionals

The retirement planning landscape has changed since the passage of the Secure Act in 2019 and Secure 2.0 in 2022.

Financial professionals need to know how the provisions in this legislation will affect their clients. More than 90 provisions in the latest legislation (Secure 2.0) may have an impact on the financial planning decisions of Americans.

Here are 3 things for financial professionals to know about Secure 2.0. This is a summary, and not all provisions are included.

What was in the original Secure Act?

The provisions in the original SECURE Act affected retirement plan fiduciaries, business owners, plan participants, and retirement plan beneficiaries. Your clients will likely be most affected by the impacts on retirement plan participants and beneficiaries.

The original Secure Act made a handful of changes that affect plan participants.

  • No maximum age for IRA contributions
  • Increased age for most required minimum distributions to 72
  • Allows for portability of a retirement annuity from a retirement plan
  • Made elective deferrals easier for long-term, part-time employees
  • Allows for distributions for birth and adoptions without the penalty for early distributions

The act also eliminated the “stretch” IRA option for many non-spouse beneficiaries of retirement plans.

Secure 2.0 changes to required minimum distributions

Individual retirement accounts like an IRA or 401(k) are subject to required minimum distribution (RMD) rules. These rules require owners of IRAs or participating qualified retirement plans to begin taking annual minimum distributions at a certain age. Starting in 2024, RMDs will no longer be required for a Roth employer-sponsored plan.

The latest legislation altered the age at which required minimum distributions must begin. The RMD age is now 73 for those who turn 72 after Dec. 31, 2022 but before Jan. 1, 2033, and 75 for those who turn 74 after Dec. 31, 2032.

New provisions also reduce the penalty for missing an RMD. The penalty is now 25%, down from 50%. The penalty can be lowered to 10% if the missed distribution is corrected within two years.

Secure 2.0 changes to catch-up contributions

Catch-up contributions help people who are close to retirement save more money at a time when they may have the means to do so. Secure 2.0 changed some of the rules around these catch-up contributions.

The changes include indexing IRA catch-up contributions for inflation, increasing catch-up contributions to employer-sponsored plans for people aged 60 to 63, and requiring high earners (more than $145,000) to make catch-up contributions with after-tax dollars to a Roth account.

Secure 2.0 changes to early withdrawal penalty exceptions

As a general rule, there is a penalty for early withdrawals to qualified retirement accounts. Secure 2.0 added new exceptions to those rules. In the coming years, exceptions will now be given for making early withdrawals because of a terminal illness, a personal emergency ($1,000 maximum), domestic abuse, or long-term care premiums.

This content is for general educational purposes only. It is not intended to provide fiduciary, tax, or legal advice and cannot be used to avoid tax penalties; nor is it intended to market, promote, or recommend any tax plan or arrangement. Allianz Life Insurance Company of North America, its affiliates, and their employees and representatives do not give legal or tax advice or advice related to Social Security or Medicare. Customers are encouraged to consult with their own legal, tax, and financial professionals for specific advice or product recommendations, or the Social Security Administration (SSA) office for their particular situation.

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