When Do SECURE Act 2.0 Provisions Take Effect?

The SECURE Act 2.0, officially known as Division T of the Consolidated Appropriations Act, 2023, was signed into law on December 29, 2022. This legislation builds upon the original SECURE Act of 2019, which aimed to improve retirement savings opportunities for Americans. Its primary goal is to enhance the nation’s retirement system by expanding access to savings, simplifying rules, and encouraging greater participation. It also makes it more attractive for employers to offer retirement benefits.

Key Provisions Effective in 2023

For taxable years beginning after December 31, 2022, the age at which individuals must start taking Required Minimum Distributions (RMDs) from their retirement accounts increased from 72 to 73. This applies to those who turned 72 after December 31, 2022. Individuals who turned 72 in 2022 or earlier must continue to follow the previous RMD schedule.

Starting in 2023, the excise tax penalty for failing to take a required minimum distribution decreased from 50% to 25% of the amount not distributed. This penalty can be further reduced to 10% if the RMD failure is corrected in a timely manner, generally within two years for Individual Retirement Accounts (IRAs).

The law expanded opportunities for Qualified Charitable Distributions (QCDs). Individuals aged 70½ or older can make direct transfers from their IRA to an eligible charity, counting towards their RMDs without being included in taxable income. SECURE Act 2.0 now permits a one-time election for a QCD to a qualified charitable gift annuity.

Another provision for 2023 allows rollovers of unused funds from 529 college savings plans to Roth IRAs. To qualify, the 529 plan must have been open for at least 15 years. The amount rolled over is subject to annual Roth IRA contribution limits and a lifetime aggregate limit of $35,000 per beneficiary. The transferred amount must come from contributions made to the 529 account at least five years prior to the rollover date.

Key Provisions Effective in 2024

Effective for plan years beginning after December 31, 2023, employer-sponsored retirement plans can establish pension-linked emergency savings accounts (PLESAs). These accounts allow non-highly compensated employees to make Roth (after-tax) contributions, typically capped at $2,500 annually, though employers may set a lower limit. Funds in a PLESA can be withdrawn without tax or penalty for emergency expenses.

Beginning in 2024, individuals can make penalty-free withdrawals of up to $1,000 per year from retirement plans for emergency expenses. The individual can self-certify that they meet the conditions for this withdrawal. The funds must be repaid within three years to avoid further emergency distributions during that period.

Effective in 2024, victims of domestic abuse can make penalty-free withdrawals from their retirement accounts. This provision allows for withdrawals up to the lesser of $10,000 or 50% of the vested benefit.

For plan years beginning after December 31, 2023, employers can make matching contributions to an employee’s retirement account based on the employee’s qualified student loan payments. This helps employees prioritizing student debt still benefit from employer contributions to their retirement savings.

Effective in 2024, Required Minimum Distributions are no longer mandated for Roth 401(k) and Roth 403(b) accounts during the original owner’s lifetime. This change aligns Roth employer-sponsored plans with Roth IRAs, where RMDs are not required for the original account holder.

Employers can offer small financial incentives to encourage employees to participate in a retirement plan. Effective for plan years beginning after December 29, 2022, these incentives can include gift cards or other de minimis items, with a maximum value of $250.

Key Provisions Effective in 2025 and Later

For plan years beginning after December 31, 2024, most new 401(k) and 403(b) plans are required to include automatic enrollment features. Eligible employees will be automatically enrolled at an initial contribution rate of at least 3% but not more than 10% of their wages, with automatic annual increases of 1% until contributions reach at least 10% but not more than 15%. Exceptions apply to small businesses with 10 or fewer employees, businesses less than three years old, governmental, and church plans.

The law further increased the RMD age to 75 for individuals who turn 74 after December 31, 2032. This change will become effective on January 1, 2033.

Catch-up contribution limits for individuals aged 60 to 63 are increased, effective for taxable years beginning after December 31, 2024. For 401(k), 403(b), and governmental 457(b) plans, the new limit is the greater of $10,000 or 150% of the standard catch-up contribution limit, which is $11,250 for 2025. For SIMPLE IRA plans, the increased catch-up limit for this age group will be $5,250 in 2025. These higher limits are indexed for inflation.

A national online database to help individuals locate lost retirement accounts is mandated to be established by December 29, 2024, making it accessible in 2025. This “Retirement Savings Lost and Found” database will simplify tracking down retirement accounts from previous employers.

For plan years beginning after December 31, 2024, the eligibility requirement for long-term part-time employees to participate in 401(k) plans will be reduced. Previously, these employees needed to complete three years of service with at least 500 hours per year; this is now reduced to two years.

Starting for taxable years beginning after December 31, 2025, a rule requiring mandatory Roth catch-up contributions for high earners will take effect. Individuals aged 50 or older with prior year wages exceeding $145,000 (indexed for inflation) will be required to make all catch-up contributions on an after-tax (Roth) basis to their workplace plans. This means such contributions will not be tax-deductible in the year they are made but will offer tax-free withdrawals in retirement.