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Important Changes from Secure Act 2.0 in 2022

You probably remember hearing about the SECURE  (Setting Every Community Up for Retirement Enhancement) Act that was passed in December 2019 and became a law as of January 1, 2020. This was the legislation that made changes to retirement savings and required minimum distributions from retirement plans. Specifically, the age for taking RMDs was increased from 70.5 to 72 with that act, and a new requirement for inherited IRAs mandates that they be fully distributed in many cases within ten years of the account owner’s death. Last December, Congress passed SECURE 2.0, which made many more significant changes to retirement savings and other employee benefits, as well as to college savings plans. We have summarized a few highlights below. You can also read a summary of all the provisions in this 19 page document on the Senate Finance Committee website.

Good news for those born in 1951 or later:

As of January 1, 2023, the age for Required Minimum Distributions has been further increased from 72 to 73. This will affect anyone born in 1951 (who now don’t have to begin RMDs this year after all, but get one more year), and later. The RMD age will increase again, thanks to this act to age 75 starting on January 1, 2023.

Good news for those with college savings or those who want to save for college:

The SECURE 2.0 Act of 2022 acknowledges that concerns about money being “trapped” in a 529 plan if it is not needed for education expenses. Currently withdrawals from a 529 for any reason other than qualified education expenses are subject to taxes and penalties. The SECURE 2.0 Act allows leftover 529 funds to be rolled into a Roth IRA for the beneficiary beginning in 2024. There are some limitations:

  • The rollover from 529 to Roth IRA is capped at $35,000 over the beneficiary’s lifetime.
  • Rollovers are subject to the Roth IRA annual contribution limits (the current limit is $6,500 for those under age 50, so it would take six years to rollover the maximum amount at today’s limit).
  • The 529 must have been opened for more than 15 years.

If you have delayed opening a 529 account for your child out of fear of trapped funds, now is a great time to open one and start the 15 year clock so that you can roll the excess into a Roth IRA for your child if they don’t end up needing all the money for college.

If you have a 529 account for your child (or yourself) and they have already completed their education, make a note on your calendar to start the rollover process in January 2024.

Good news for small business owners:

The SECURE 2.0 Act of 2022 will make it easier and less expensive for small businesses to provide retirement savings vehicles for their employees.

  • SECURE 2.0 increases the tax credit to cover 100% (up from 50%) of startup administrative costs up to $5,000 for the first three years of retirement plans established by employers with up to 50 employees. It also clarifies that small businesses joining a multiple employer plan (MEP) are eligible for the credit, even if the MEP is not a new one.
  • Companies who employ military spouses can receive a tax credit for shortening the time to eligibility and vesting in retirement plans for those workers.
  • Businesses can now provide small, immediate incentives (such as gift cards in small amounts) to workers to entice them to participate in retirement plans.
  • Increased contribution limits for SIMPLE plans, including allowing nonelective contributions of up to 10% of compensation or $5,000 per employee.
  • Employers of domestic employees, such as childcare providers, can now provide retirement benefits for those employees under a Simplified Employee Pension (SEP).
  • Businesses without retirement plans can offer a starter 401(k) allowing employees to defer up to the IRA contribution limits with no match required by the employer. This begins in 2024.
  • Employers can help employees build up an emergency fund by automatically opting them into pension-linked emergency savings accounts at no more than 3% of their salary. Once the cap of $2,500 is reached, additional contributions can be directed to the employee’s Roth defined contribution plan.
  • Sole proprietors who establish new solo 401(k) plans can now make their initial employee contributions any time before their tax deadline instead of by year-end.
  • Employers can replace a SIMPLE plan with a safe harbor 401(k) plan during the plan year.

Good news for savers:

  • The “catch-up” contribution about for individuals over age 50 will be indexed to increase with inflation, and will increase to higher limits at age 60, 61, 62, and 63.
  • Student loan payments can count as retirement plan contributions for the purpose of receiving a match from employers. The match amount would go into the retirement plan.
  • A new exception for emergency expenses for “unforeseeable or immediate financial needs relating to personal or family emergency expenses” will allow for penalty-free withdrawals of up to $1,000 per three year period. If the amount is repaid within the three years, the amount can be withdrawn again if needed for another emergency.
  • Part-time workers will be eligible to participate in 401(k) plans sooner under SECURE 2.0 (after 2 years and 500 hours instead of 3 years and 500 hours—no change is made to the 1 year and 1,000 hours eligibility).
  • Penalties for failing to take a required minimum distribution are reduced from 50% to 25% and can be reduced further to 10% if corrected in a timely manner.
  • A new database will be built within two years to make it easier for individuals to track down old 401(k)s and pensions, and to make it easier for employers to track down their former employees to deliver their benefits.
  • Options for making qualified charitable distributions from IRAs are expanded and the annual limit is increased.
  • Long term care insurance contracts will be able to be purchased with retirement plan distributions beginning in three years. Distributions of up to $2,500 per year for qualified long term care (with “high quality coverage”) will be exempted from the additional 10% tax on early distributions.


This act is packed with provisions to empower workers to be better prepared for retirement. There are more provisions that we didn’t detail here that make it easier to use an annuity in a retirement account, change reporting requirements, extend additional benefits to firefighters, clarify existing regulations, and many more topics. We included here the sections that we think are most applicable to our clients.

Two Action Items:

1. If you have college-bound children and have delayed opening a 529, it might be time to reconsider.

2. If you own a business and have not started a retirement plan, you now have more affordable options to start one and to help your employees achieve financial security.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations may vary. Therefore, this information should be relied upon when coordinated with individual professional advice.