The Latest 2023 SECURE Act Updates You Need to Know

While most of us spent the Christmas holiday eating fruitcake, opening presents, and spending time with the ones we love, Congress was busy making decisions that would affect SDIRA retirement account holders. If you haven't heard yet, Congress passed a massive piece of retirement legislation that will have a significant impact on IRAs and the entire retirement industry.

The SECURE Act 2.0 is a collection of provisions intended to build on the provisions of the SECURE Act of 2019. The act was part of a $1.7 trillion omnibus spending Congress approved at the end of 2022. While this post won't cover everything, we will highlight the main points and significant changes Quest specialists believe are the most crucial for alternative investors to know. 

Does the SECURE Act 2.0 Affect Retirement Accounts?

Both self-directed IRAs and 401ks will be affected by the SECURE Act 2.0. Some changes you can expect to see are regarding Required Minimum Distributions (RMD) and other distributions, contributions, and prohibited transactions. Other changes to be aware of will be changes to enrollment and employer matching for 401k holders, finding lost benefits, and Saver's Credit. 

RMDs/Distributions

One of the biggest changes is the increase for RMD age, which was 72. The age increased to 73 effective in 2023. If you turned 72 in 2022 or earlier, you still have to take your 2022 RMD. It’s also important to note that the RMD age will increase to 75 in 2033. The penalty for not taking an RMD has also been lowered from 50% to 25% (or 10% if corrected in a timely manner) and there will be no more in-plan RMDs for Roth funds in 401ks starting in 2024. For distributions, there is no penalty tax on distributions of income on excess IRA contributions.

Contributions

There are also some changes surrounding contributions, too. One of the most notable changes will be for SEP and SIMPLE IRAs. Before, these accounts could only hold pre-tax contributions. Now, they can hold both pre-tax and post-tax funds. Catch-up contributions saw a change, as well. Currently, catch-up contributions are stagnant at $1,000, but with the new act, they will now be indexed with inflation starting in 2024.

401k/General Retirement Accounts

Pre-SECURE Act 2.0 employees needed to elect to enroll in a 401k plan and then determine their contributions. A new 401k plan must automatically enroll participants to contribute at least 3% and not more than 10% and automatically increase contributions 1% per year to 10%-15%. Participants can still opt out, but this will start in 2025. Another change is that, before the new legislature, the employer matching was strictly based on employee contributions. Now, it allows employers to match student loan payments into a 401k. This act makes changes to the Saver’s Credit, too, effective after December 31, 2026. Saver’s Credit offered a tax deduction for those who participated, and now Saver’s Credit is going to be a matching system that will deposit funds into an individual’s retirement account. Where employees needed to keep track of all QRP accounts from past employers, that is no longer needed. The Department of Labor will create a Retirement Savings Lost and Found no later than two years after the date of enactment of SECURE Act 2.0 to help individuals locate their pension and 401k benefits.

Prohibited Account Transactions

The last topic we will cover is about prohibited transactions. The final bill that passed into law “clarified” to affirm that each IRA is a separate contract. In other words, if you do a prohibited transaction in one IRA, that gets blown up under the regular rules. But this doesn’t affect other IRAs of the same person. And, of course, this provides no relief for prohibited transactions done prior to 2023. As Shakespeare would say, this is “much ado about nothing.”

As you can see, there are some very big changes that SDIRA and retirement account holders need to be aware of. While it provides a lot of increased opportunities, every situation is different. If you have more questions about the SECURE Act 2.0 changes, call our IRA Specialists for more information at 855-FUN-IRAS (855-386-4727).