What is the SECURE Act? And how could 2.0 bring further changes? (2023)

Signed into law in December 2019, the Setting Every Community Up for Retirement Enhancement Act took aim at a long-standing concern of both major political parties: the lack of access to tax-advantaged retirement plans. The SECURE Act, as it's more widely known, included a series of changes aimed at broadening the number of Americans who could use these plans and helping older Americans build their assets.

In 2022, the U.S. House of Representatives overwhelmingly passed a successor bill, commonly referred to as the SECURE 2.0 Act, that could advance these goals further if passed by the Senate and signed by President Biden.

Major elements of the SECURE Act

The original SECURE Act, much of which took effect in January 2020, modified the tax code—affecting everyone from new parents to those who inherit IRAs. Here are some of the most important rule changes the legislation introduced.

1. Age increase for required minimum distributions

Older adults who own a workplace retirement plan—including 401(k)s and 403(b)s—as well as traditional IRAs still have to take required minimum distributions, or RMDs. However, this act pushed back the age at which you have to take those distributions from 70½ to 72. That was welcome news for retirees, who potentially have an extra year and a half to let their investment assets grow tax deferred. However, the rule only applies to those who turned 70½ in 2020 or after; if you were born too early, the previous RMD rules still apply.

(Video) Secure Act 2.0 - Big Changes Coming to Retirement Plans

2. No more age limit for IRA contributions

Prior to this act, retirement savers had to stop making contributions to an IRA when they reached age 70½. Since the law's passage, you can continue to put money into your account beyond that age as long as you continue generating earned income through work. Along with the delayed RMD, that amendment provides an opportunity for older adults to further build up retirement assets before making withdrawals.

3. Graduate students can use IRAs

The legislation also cast a larger net regarding who can contribute to an IRA. One requirement to invest through these accounts is that you have earned income. Stipends and fellowship awards for students previously didn't count, but the SECURE Act relaxed that rule to allow graduate and post-doctoral students to count those income sources as earned income.

4. New parents can easily make withdrawals

Normally, savers face a 10% early withdrawal penalty when they pull money from a workplace plan before reaching age 59½. But there are several exceptions to that rule, and the SECURE Act added another one: welcoming a new child into your family. The law makes it possible for parents to withdraw up to $5,000 from their 401(k) or other employer-sponsored plan without incurring a penalty.

To qualify for this carve-out, the distribution has to take place within one year of the child's birth or adoption. It's important to note that parents still have to pay ordinary income tax on any amount that they withdraw. Depleting your retirement account early should be considered a last resort. Still, it's an opportunity for parents to get some reprieve from the financial responsibilities of having a new child.

5. More part-time employees qualify for 401(k)s

(Video) How The SECURE Act 2.0 Could Change Retirement Rules & What To Expect

Thanks to the passing of this act in 2019, more part-time employees gained the ability to contribute to workplace retirement plans. Before, workers needed to accrue 1,000 hours of service within a 12-month window in order to participate in 401(k)-style plans. Starting in 2024, those who work at least 500 hours a year for three consecutive years can also invest through these tax-advantaged accounts. Plans began crediting service in 2021, which means the first employees to qualify under the new rule can make contributions as of 2024.

6. Tax credits for small business plans

Small-business owners face a number of obstacles to providing retirement plans, including the high cost of offering this benefit. To address this hurdle, SECURE increased the maximum tax credit for setting up a new plan from $500 to $5,000.

Starting in 2021, entrepreneurs also have the opportunity to provide retirement benefits through multiple employer plans (MEP) and pooled employer plans (PEP). Making use of these outside plans can mean fewer administrative challenges for a small business, but it also involves giving up some of the control an employer would typically have in a more traditional plan.

7. Less time to draw down inherited IRAs

While the law introduced a number of changes favorable to IRA owners, not everyone was better off in the wake of SECURE—among them, non spouses who received an IRA as part of an inheritance. Before, these heirs could take smaller distributions over the course of their lifetime, reducing their annual income tax burden and allowing a big chunk of the money to continue growing on a tax-deferred basis.

The act changed that, giving many heirs 10 years to drain the IRA. There are a number of exceptions, however. The 10-year rule doesn't apply to surviving spouses, who can still take lifetime distributions. Nor does it cover disabled heirs or those who are less than 10 years younger than the original IRA owner. Minor children are also exempt until they reach the age of legal adulthood in their state, at which point the 10-year window goes into effect.

(Video) New Law Could Wreck Your Retirement | What's in the new Secure Act 2.0? | Christy Capital Management

What to expect with SECURE 2.0

In March 2022, the House approved another bill—the Securing a Strong Retirement Act—that aims to build on many of the measures adopted in the original act. Known as SECURE Act 2.0, the bipartisan legislation would further increase access to tax-deferred retirement plans and seek to increase their utilization among employees.

If enacted, the House version of SECURE 2.0 would include:

Expansion of auto-enrollment

Access to a workplace retirement plan is one thing—getting workers to contribute is quite another. More than 10% of eligible workers didn't make any contributions to their plan in 2020, according to a recent survey by the Plan Sponsor Council of America.

Supporters of SECURE 2.0 hope to change that by including a rule that would automatically enroll new employees, starting with a pre-tax contribution equal to 3% of their wages. Contributions would then increase by 1 percentage point each year until the employee contributed at least 10% — though not exceeding 15% — of their earnings. Employees would have to opt-out if they chose not to participate.

Church- and government-run plans, as well as new companies and small businesses with fewer than 10 employees would be excluded from this requirement.

(Video) Secure Act 2.0: 3 Big Changes That Will Impact Your Retirement

Delayed mandatory distributions

The original act pushed the age for required minimum distributions to 72. The newer bill would gradually push back the age for RMDs even further—to age 73 in 2023, to age 74 in 2030 and to age 75 in 2033. It would also significantly reduce the penalty for failing to make the necessary distributions, from 50% to 25%. Additionally, investors who corrected their mistake promptly would only be required to pay a 10% fee. All in all, these changes mean there could be more time for retirees' retirement assets to grow on a tax-deferred basis.

Increased catch-up contributions

Current IRS rules allow workers age 50 and older to contribute an additional $6,500 per year to workplace plans compared with younger employees. SECURE 2.0 would boost that "catch-up" amount to $10,000 for those between the ages of 62 and 64. It would also raise the $3,000 catch-up amount for SIMPLE IRAs to $5,000 for this same age group.

Faster eligibility for part-time workers

The 2019 act already expanded the number of part-time workers who could participate in a workplace retirement plan. Under that law, employees are eligible to participate in workplace plans if they fulfill one of two requirements: they worked 1,000 hours within a 12-month period or they worked 500 hours in three consecutive years. SECURE 2.0 would drop that latter requirement to two years, allowing some part-time workers to participate a year earlier.

Increase in the Saver's Credit

The Saver's Credit provides tax relief to low- and middle-income taxpayers who contribute to an IRA or workplace plan. The credit amount is equal to 50%, 20% or 10% of the first $2,000 in annual contributions based on one's adjusted gross income. That equates to a tax break of $1,000, $400 or $200. SECURE 2.0 would increase the allowable Saver's Credit beginning in 2027, applying the 50% cap to all eligible individuals and couples (though higher-income earners would still be phased out).

Should SECURE 2.0 become law, it will make qualified retirement plans accessible for more Americans. On the other hand, it will also add complexity to the already intricate set of rules governing these accounts. A local Thrivent financial advisor can help you create a retirement strategy that meets your unique financial needs and helps to reduce your tax liability.


What is the Secure act? ›

The SECURE Act changed the rules around how you can save and withdraw money from your retirement accounts. It was also the first major legislative change to tax laws relating to retirement in more than 10 years. Now, new legislation is receiving serious attention from Congress.

How does the Secure act affect? ›

Guaranteed income for life now available for more employees

The new SECURE Act rules will now: Make it easier for employers to include annuities as an option in their retirement plans. Require employers to show employees how their retirement account balances translate into guaranteed monthly income.

Will IRA limits increase in 2023? ›

For 2023, the amount an individual can contribute to a 401(k), 403(b), and most 457 plans increases to $22,500, up from $20,500 in 2022.

What is a secure retirement account? ›

Secure Retirement Accounts: A "Secure Retirement Account" is the default IRA for payroll savings programs. To be a "Secure Retirement Account," the account must offer an investment mix similar to that of the Federal Thrift Savings Plan and meet moderate cost standards.

What does SECURE Act 2.0 mean to me? ›

Expands automatic enrollment in retirement plans.

Secure Act 2.0 would require employers with 401(k) or 403(b) plans to automatically enroll all new, eligible employees at a 3% contribution rate that would tick up by 1% annually until it reaches 10%.

Is the SECURE Act 2.0 in effect? ›

The final version of the SECURE Act 2.0, which is expected to be a combination of similar House and Senate committee-approved bills, is predicted to pass in late 2022.

How does the SECURE Act 2.0 affect RMD? ›

Under the SECURE Act 2.0, the shift would be gradual, but start quickly. Starting in 2023, the age for taking RMDs would jump from 72 to 73. Then, starting in 2030, it would creep up again to 74. And, finally, it would rise to 75 in 2033.

How does the SECURE Act affect trust beneficiaries? ›

Changes to Trusts as IRA Beneficiaries Under the SECURE Act

Under the SECURE Act, beneficiaries must receive the entire distribution of the retirement assets within 10 years of the original account owner's death. Failure to distribute the IRA within this time will result in a penalty of 50% of the undistributed amount.

Who does the SECURE Act apply to? ›

The SECURE Act makes it possible to do just that (opens in new tab). The act requires that all part-time employees who have worked at least 500 hours for the past three year-to-date periods of their employment be eligible to enroll in 401(k) plans in workplaces that offer them.

Can a 75 year old contribute to an IRA? ›

For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs. For 2019, if you're 70 ½ or older, you can't make a regular contribution to a traditional IRA.

Is it better to max out IRA at beginning of year? ›

Indeed, by maxing out your IRA in January (or at least during the first few months of the year) rather than waiting until the tax-filing deadline of the following year to make a prior-year contribution, you are effectively giving that money up to 15 extra months to deliver tax-deferred, compounded growth.

Does Pension count as earned income for Roth IRA? ›

Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest and dividend income, or any amount received as pension or annuity income, or as deferred compensation.

What is the strong retirement Act of 2022? ›

The Securing a Strong Retirement Act of 2022 includes the Education and Labor Committee's RISE Act, which makes bipartisan and commonsense improvements to ensure that the retirement system better serves workers, retirees, and employers.

What are the 3 types of retirement? ›

Three types of retirement and how to plan for each
  • Traditional Retirement. Traditional retirement is just that. ...
  • Semi-Retirement. ...
  • Temporary Retirement. ...
  • Other Considerations.
18 May 2020

Can banks seize your retirement account? ›

The general answer is no, a creditor cannot seize or garnish your 401(k) assets. 401(k) plans are governed by a federal law known as ERISA (Employee Retirement Income Security Act of 1974). Assets in plans that fall under ERISA are protected from creditors.

Is the RMD age changing to 73 in 2022? ›

The Securing a Strong Retirement Act of 2022, passed by the House of Representatives in March 2022, would extend the start of RMDs beyond age 72 on a gradual basis moving forward: For those who reach age 72 after Dec. 31, 2022 and age 73 before Jan. 1, 2030, the RMD age would be 73.

How does the SECURE Act affect taxes? ›

Major Provisions of the SECURE Act

Provides a maximum tax credit of $500 per year to employers who create a 401(k) or SIMPLE IRA plan with automatic enrollment. Enables businesses to sign up part-time employees who work either 1,000 hours throughout the year or have three consecutive years with 500 hours of service.

How does the SECURE Act tax credit work? ›

The credit is 50% of the employer's ordinary and necessary eligible retirement plan startup costs up to the credit annual cap. The annual cap is the greater of $500, or $250 for each non-highly compensated employee who is eligible to participate in the plan up to $5,000.

How does the SECURE Act affect estate planning? ›

However, the SECURE Act contains a number of provisions that may yield negative tax and estate planning results for those affected. For example, the SECURE Act shortens (to 10 years) the period over which certain beneficiaries must withdraw an IRA/retirement plan balance after the death of the owner of the account.

When did the SECURE Act become effective? ›

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019 and became a law as of Jan. 1, 2020.

Did the SECURE Act pass? ›

The House of Representatives has passed a bill that will improve the retirement savings system for U.S. workers, moving it closer to becoming law. The Securing a Strong Retirement Act, H.R. 2954, also called the Secure Act 2.0, was approved on Tuesday with a bipartisan vote of 414-5.

Will RMD be waived again in 2022? ›

The IRS announced late Friday that there will be no excise tax penalty on missed required minimum distributions (RMDs) of inherited IRAs for tax years 2021 and 2022. Final rules of what amounts to an unexpected tax reprieve for some people who inherited retirement plans such as IRAs, will be disclosed next year.

What are the RMD changes for 2022? ›

Your distribution period gets shorter every year, based on your age. For example, if you take your first RMD in 2022 at age 72, your distribution period is 27.4 years (vs. 25.6 years, based on the old table). When you turn 74 it will be 25.5 years (vs.

How do I get around my RMD? ›

If you have assets in a tax-deferred account, you could avoid RMDs and their associated taxes by rolling the balance into a Roth IRA. This is done through a Roth conversion in which you essentially turn tax-deferred assets into tax-free ones.

Does a trust override a beneficiary on a bank account? ›

Generally, a beneficiary designation will override the trust provisions. There are situations, however, in which the beneficiary designation will fail and the proceeds of the account will pass under the terms of the trust.

What rights do beneficiaries have over the trust assets? ›

Individual beneficiaries have no rights to assets until the trustees exercise a discretion in their favour. Consequently, an obligation for trustees to act impartially while managing trust assets for the benefit of all beneficiaries is reasonable and appropriate.

Should I name my trust as beneficiary of my IRA? ›

However, a trust also can be named as an IRA beneficiary, and in many instances, a trust is a better option than naming an individual. When a trust is named as the beneficiary of an IRA, the trust inherits the IRA when the IRA owner dies. The IRA then is maintained as a separate account that is an asset of the trust.

Who is exempt from the SECURE Act? ›

The exceptions

A minor child (not grandchild) of original owner. Someone less than 10 years younger than original owner. Someone disabled or chronically ill (as defined under the applicable sections of the Internal Revenue Code)

Does the SECURE Act apply to defined benefit plans? ›

The SECURE Act now makes the relief permanent and also gives more flexibility in passing nondiscrimination by making it easier to aggregate a defined contribution plan with a frozen defined benefit plan. The Act also provides participation test relief.

Do you have to pay taxes on an IRA after 70? ›

You must begin taking minimum withdrawals from your traditional IRA in the year you turn age 70 1/2. The amount you withdraw at that time is taxed as ordinary income, but the funds that remain in your IRA continue to grow tax deferred regardless of your age.

How much can a retired person earn without paying taxes in 2022? ›

In 2022, this limit on your earnings is $51,960.

The special rule lets us pay a full Social Security benefit for any whole month we consider you retired, regardless of your yearly earnings.

What happens to my IRA when I turn 72? ›

You generally have to start taking withdrawals from your IRA, SEP IRA, SIMPLE IRA, or retirement plan account when you reach age 72 (70 ½ if you reach 70 ½ before January 1, 2020). Roth IRAs do not require withdrawals until after the death of the owner. You can withdraw more than the minimum required amount.

Why is my 401k losing money right now 2022? ›

There are several reasons your 401(k) may be losing money. One reason is that the stock market is simply going through a down period. Another reason your 401(k) may be losing money is that you have invested in a specific company or industry that is not doing well. Finally, your 401(k) may lose money because of fees.

How much money should I put in my Roth IRA monthly? ›

Because the maximum annual contribution amount for a Roth IRA is $6,000, following a dollar-cost-averaging approach means you would therefore contribute $500 a month to your IRA.

Should I fund my Roth IRA all at once? ›

If you contribute everything on a single day, you are risking 12 months of potentially better market activity. Saving as much as you can is always smart for anyone. “Don't try to time the market, especially for a longer term investment like a 401(k),” she says.

Does money in the bank affect Social Security retirement benefits? ›

Social Security does not count pension payments, annuities, or the interest or dividends from your savings and investments as earnings. They do not lower your Social Security retirement benefits.

What is the downside of a Roth IRA? ›

One disadvantage of the Roth IRA is that you can't contribute to one if you make too much money. The limits are based on your modified adjusted gross income (MAGI) and tax filing status. To find your MAGI, start with your adjusted gross income (AGI)—you can find this on your tax return—and add back certain deductions.

Does my pension affect my Social Security? ›

Pension payments, annuities, and the interest or dividends from your savings and investments are not earnings for Social Security purposes. You may need to pay income tax, but you do not pay Social Security taxes.

What will the new maximum Social Security benefit be in 2022? ›

The maximum benefit depends on the age you retire. For example, if you retire at full retirement age in 2022, your maximum benefit would be $3,345. However, if you retire at age 62 in 2022, your maximum benefit would be $2,364. If you retire at age 70 in 2022, your maximum benefit would be $4,194.

What age can you retire 2022? ›

You can start your retirement benefit at any point from age 62 up until age 70. Your benefit will be higher the longer you delay starting it.

What did the secure ACT change? ›

Key takeaways. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 revised existing rules around retirement saving, including raising the age of required minimum distributions (RMDs) and eliminating age limits for traditional IRA contributions.

What is the 4 rule for retirees? ›

One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement. In subsequent years, you adjust the dollar amount you withdraw to account for inflation.

What is the 3% retirement rule? ›

This strategy is supposed to help your retirement savings last 30 years, but it doesn't always work out that way. Some conservative retirees choose to follow the 3% rule instead. This is the same as the 4% rule, except you limit yourself to 3% of your savings in your first year.

What are the 2 types of pensions? ›

There are two types of workplace pension schemes – defined benefit and defined contribution schemes.

Is the government going to take my IRA? ›

An example of baseless speculation that has come up in the past and has recently resurfaced is the claim that the government is planning to confiscate all IRAs and 401(k) plans. This is simply not true. There is no evidence that this has ever been proposed nor is it currently proposed.

Can I withdraw all my retirement money? ›

Yes. In retirement, you can withdraw only as much as you need to live, and allow the rest to remain invested.

Can you touch your retirement money? ›

Yes, you can withdraw money from your individual retirement account (IRA) while you're still working.

How does the SECURE Act affect my IRA? ›

The SECURE Act pushed back the age at which retirement plan participants need to take required minimum distributions (RMDs), from 70½ to 72, and allows traditional IRA owners to keep making contributions indefinitely.

What is the SECURE Act 2022? ›

With the well-documented link between financial stress and lower employee productivity, these SECURE Act 2.0 provisions would be a welcome sight: Requires automatic enrollment for certain employers with 401(k) or 403(b) plans. Employees would have the choice to opt out of enrollment.

Who are eligible beneficiaries under SECURE Act? ›

An eligible designated beneficiary includes a surviving spouse, a disabled individual, a chronically ill individual, a minor child, or an individual who is not more than 10 years younger than the account owner. Certain trusts created for the exclusive benefit of disabled or chronically ill beneficiaries are included.

How does the SECURE Act affect beneficiaries? ›

The SECURE Act of 2019 changed the distribution rules for inherited IRAs and other retirement plans by eliminating the life expectancy payout (“stretch IRA”) for most beneficiaries. In February 2022, the U.S. Treasury issued a notice of proposed regulations regarding these new distribution rules.

What are the main provisions of the SECURE Act? ›

The Secure Act included a requirement that part-time employees with at least three consecutive years of at least 500 hours of service be eligible to defer under a 401(k) plan. (See blog post.) This provision would reduce the service requirement for part-time workers to two years.

What was the purpose of the SECURE Act quizlet? ›

The primary goals of the SECURE Act are to expand retirement savings, improve plan administration, simplify existing rules, and preserve retirement income. 1)Multiple employer plans (MEPs).

Who are the 3 qualified beneficiaries? ›

Qualified beneficiaries are farmers, tillers or farmworkers who are landless or who own less than three (3) hectares of agricultural lands; Filipino citizens; residents of the barangay (or the municipality if there are not enough qualified beneficiaries in the barangay) where the landholding is located; at least ...

How can I avoid paying taxes on my IRA withdrawal? ›

If you're disabled, you can withdraw IRA funds without penalty. If you pass away, there are no withdrawal penalties for your beneficiaries. You can avoid an early withdrawal penalty if you use the funds to pay unreimbursed medical expenses that are more than 7.5% of your adjusted gross income (AGI).

How much can I withdraw from my IRA without paying taxes? ›

Your first home – You can early withdraw up to $10,000 from an IRA without penalties if you put the money toward buying your first home. Health insurance – If you become unemployed and you need to purchase health insurance, you can make a penalty-free early withdrawal.

Does claiming tax relief affect credit score? ›

Tax liens are no longer included on your credit reports. This means they will not have an influence upon your ® Score or VantageScore®.

How does the 3600 dollar tax credit work? ›

This tax credit helps offset the costs of raising kids and is worth up to $3,600 for each child under 6 years old and $3,000 for each child between 6 and 17 years old. You can get half of your credit through monthly payments in 2021 and the other half in 2022 when you file a tax return.


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