Inside The Plan

How the SECURE ACT 2.0 will Affect You

In today's episode of the "Inside the Plan with the 401(k) Brothers", host Bill Bush and Andy Bush, advisors at Horizon Financial Group share what happened just before the New Year; some sweeping legislation was passed that had to do with retirement plans and retirement savings. It was called the SECURE ACT 2.0 and the “secure” part stands for setting every community up for retirement enhancement.

Episode Highlights

• 01.11: The secure part stands for setting every community up for retirement enhancement. Secure. 1.0 back then was just the Secure Act, was passed just a couple of years ago. But the new changes, have kind of been in talks for a while, but finally got a chance to move them through the process and got them approved.

• 02.32: Bill and Andy discuss the provision 331 act - it's the natural disaster. In the Baton Rouge and southern Louisiana areas, we encountered hurricanes in the past five or six years and some historic floods.

• 04.20: The act was signed on December 29th, 2022. By the way, there are some provisions that actually go into effect retroactively to the tax year 2020.

• 04.43: Some of the bigger provisions that are going to start taking place here in 2023 are really on the required minimum distributions.

• 06.30: Another good thing they did is addressing penalties for not taking RMDs. In the past the IRS could penalize you 50% of what you were supposed to take minus what you already did take. Now granted you could appeal that and usually they would alleviate that fine or penalty, but they have narrowed that penalty from 50% down to 25% and then further down to 10%.

• 8.22: Provision under 601 allows SEP and simple IRA's to be permitted to have Roth.

• 9.27: Section 304 has to do with distributions the cash-out limit increase the limit from 5000 to 7000, so a plan could roll you out into an IRA if you left that plan.

• 9.52: Section 314 distributions are penalty free withdrawals for domestic abuse victims.

• 10.15: Section 110 is the student loan matching program.  An employer has to allow for that … it says if an employee has to pay back loans and they are doing that instead of putting dollars into their 401K, the employer can contribute a match of those dollars into the 401k

• 11.22: In the year 2024 there's going to be a thing called the starter 401K that is in section 121 and so that permits an employer that does not sponsor retirement plan to offer this starter 401K plan and it requires that all employees be default enrolled at 3% to 15%.

• 11.57: Section 127 is the emergency savings account that is allowed at an employer may offer to non-highly compensated employees and this allows them to kind of earmark a certain percentage of their contributions towards just emergencies, and that's capped out at $2500.

• 12.19: If you are already putting into retirement, that seems a little bit painless because it comes out of your paycheck. You can also kind of earmark a little bit that goes towards - The Emergency Fund.

• 12.55: What section 332 does is it allows you to replace the Simple IRA plan with the Safe Harbor 401K during the year.

• 14.00: In the Simple IRA plan, there were really two ways the employer contributed that. They either did the 2% of compensation, so kind of a non-elective whether the employee did anything or not or they did that 3% match. But SECURE 2.0 allows for more.

• 16.00: Bill and Andy are expecting to see some more revisions down in the act down the line. They have had the pleasure of being involved and appealing to the legislators  in DC, voicing concerns on behalf of participants and plan sponsors

Three Key Points

1. Bill and Andy talk about section 307, which is the qualified charitable distribution rule. They just indexed those after the year 2022, the annual limit or annual exclusion was $100,000, but their indexing those going forward, it does allow for a one-time $50,000 distribution from an IRA.

2. 529 plan beneficiaries would be permitted to roll over unused 529 plans into a Roth IRA.

3. Bill and Andy discuss some of the key provisions that are out there that might impact you or your retirement plan, whether you are a plan sponsor or whether you are a participant.

Tweetable Quotes

• "They tell everyone to don't think of your 401K plan as a savings account for any ordinary type of event, or even a disastrous type of event. Have other savings in place if you can, but that is something that's out there and I know in 2016 that widespread flooding that occurred. Hit just about everybody in the Baton Rouge area. That was a big thing and people needed some dollars to recover from that." - Bill

• "The RMD age has now been bumped up starting in 2023 to age 73. That's the required minimum distribution. - Bill

• "A lot of folks who have already paid their house off and they may not itemize when it comes to taxes." - Andy

Resources Mentioned