FAQs About SECURE Act 2.0

It is a nickname for a piece of legislation that is formally called the Securing a Strong Retirement Act. It is called Secure Act 2.0 because there is an original SECURE Act that was enacted in December of 2019, and it went into effect the following year.

Both pieces of legislation amend the guidelines for individual retirement accounts. Traditional individual retirement accounts are funded with pretax earnings, and Roth account holders contribute into their accounts after they have paid taxes on the income. Since traditional account holders never paid taxes on the income, distributions from this type of account are taxable. Roth account holders are in the opposite situation. People that have traditional accounts are compelled to take required minimum distributions (RMDs) when they reach certain age so the IRS can start collecting the tax contributions. Roth account holders never have to take assets out of their accounts. Before the enactment of the SECURE Act, the mandatory distribution age for traditional account holders was 70.5. A provision contained within this measure increased the RMD age to 72. When this bill became law, traditional account holders were given the freedom to contribute into their accounts as long as they are working regardless of their age. Before its enactment, they had to stop making contributions when they reached the RMD age.

Yes, it had a major impact on non-spouse IRA beneficiaries. The beneficiaries of both types of accounts are required to take distributions on an annual basis. Distributions to Roth account beneficiaries are tax-free, and traditional account beneficiaries pay taxes on the income. RMD amounts were based on the age of the beneficiary and the amount of money that was in the account. A younger beneficiary of a well-funded account could take only the minimum that was required by law for an extended period of time to take full advantage of the tax benefits. Since distributions to Roth account beneficiaries are not taxed, this “stretch IRA” strategy was especially effective for these people. Now, the open-ended stretch is a thing of the past because inherited accounts must be closed within 10 years of the transfer to the beneficiary.

The required minimum distribution age will go from 72 to 75 years of age. Employees will be automatically enrolled in workplace retirement savings plans, and they would have the ability to remove themselves. Employers will be given the latitude to provide 401(k) matches of qualified student loan payments that are made by employees. The savers credit for low to middle income people will go up to $1500 (it is currently $1000), and more taxpayers would be eligible. There is a $6500 401(k) catch-up contribution for older workers, and it would go up to $10,000 for individuals that are between 62 and 64 years of age. It should be noted that there is a similar piece of legislation making its way through the Senate called the Retirement Security & Savings Act. The version that is in the Senate would increase the catch-up contribution for workers that are 60 years of age and older without any particular age limit. Since both parties in both chambers of Congress are in favor of these reforms, it is just a matter of time before they are implemented.

It is a nickname for a piece of legislation that is formally called the Securing a Strong Retirement Act. It is called Secure Act 2.0 because there is an original SECURE Act that was enacted in December of 2019, and it went into effect the following year.

Both pieces of legislation amend the guidelines for individual retirement accounts. Traditional individual retirement accounts are funded with pretax earnings, and Roth account holders contribute into their accounts after they have paid taxes on the income. Since traditional account holders never paid taxes on the income, distributions from this type of account are taxable. Roth account holders are in the opposite situation. People that have traditional accounts are compelled to take required minimum distributions (RMDs) when they reach certain age so the IRS can start collecting the tax contributions. Roth account holders never have to take assets out of their accounts. Before the enactment of the SECURE Act, the mandatory distribution age for traditional account holders was 70.5. A provision contained within this measure increased the RMD age to 72. When this bill became law, traditional account holders were given the freedom to contribute into their accounts as long as they are working regardless of their age. Before its enactment, they had to stop making contributions when they reached the RMD age.

Yes, it had a major impact on non-spouse IRA beneficiaries. The beneficiaries of both types of accounts are required to take distributions on an annual basis. Distributions to Roth account beneficiaries are tax-free, and traditional account beneficiaries pay taxes on the income. RMD amounts were based on the age of the beneficiary and the amount of money that was in the account. A younger beneficiary of a well-funded account could take only the minimum that was required by law for an extended period of time to take full advantage of the tax benefits. Since distributions to Roth account beneficiaries are not taxed, this “stretch IRA” strategy was especially effective for these people. Now, the open-ended stretch is a thing of the past because inherited accounts must be closed within 10 years of the transfer to the beneficiary.

The required minimum distribution age will go from 72 to 75 years of age. Employees will be automatically enrolled in workplace retirement savings plans, and they would have the ability to remove themselves. Employers will be given the latitude to provide 401(k) matches of qualified student loan payments that are made by employees. The savers credit for low to middle income people will go up to $1500 (it is currently $1000), and more taxpayers would be eligible. There is a $6500 401(k) catch-up contribution for older workers, and it would go up to $10,000 for individuals that are between 62 and 64 years of age. It should be noted that there is a similar piece of legislation making its way through the Senate called the Retirement Security & Savings Act. The version that is in the Senate would increase the catch-up contribution for workers that are 60 years of age and older without any particular age limit. Since both parties in both chambers of Congress are in favor of these reforms, it is just a matter of time before they are implemented.