SECURE Act 2.0: A quick overview of impacts

Signed into law in 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) increased access to tax-advantaged retirement plans, broadened the number of Americans eligible for these plans and helped older Americans build their assets by:

• Removing age limit for IRA contributions
• Allowing graduate students to use IRAs
• Permitting new parents to make penalty-free withdrawals
• Implementing tax credits for small business plans
• Reducing draw-down time for inherited IRAs for non-spouses

In late 2022, the SECURE Act 2.0 was signed into law, building on the initiatives already in place and further strengthening retirement options. The passage of the SECURE Act 2.0 update made additional improvements to retirement earning and planning for Americans.

The SECURE Act 2.0 changes the RMD start age using a sliding scale based on the year you were born.

If you were born:

• Between 1951 and 1959: Your RMD age is 73.
• In 1960 or later: Your RMD start age is 75.

The penalty for not taking your RMD in a taxable year is now reduced to 25% of the amount you fail to take (down from 50%). In certain cases, the 25% penalty may be further reduced to 10% if the taxpayer remedies the RMD failure with the IRS during the Correction Window.

The Correction Window begins on the date the tax is imposed and ends at the earliest of: when the Notice of Deficiency is mailed to the taxpayer, when the tax is assessed by the IRS, or the last day of the second tax year after the tax is imposed.

A RMD is no longer required for Roth accounts in employer-sponsored retirement plans (Roth 401(k), Roth 403(b), Roth 457(b)). This allows these assets to keep growing tax-free if you don’t need them at your RMD age.

IRS rules allow workers aged 50 and older to contribute an additional $7,500 per year to employer-sponsored workplace retirement plans (like a 401(k) or 403(b)) compared with younger employees.

The SECURE Act 2.0 increased these “catch-up” contribution limits for individuals who have reached ages 60, 61, 62, and 63 by year end. For these individuals, the catch-up contribution limit increases to the greater of $10,000 or 50% more than the regular catch-up amount starting in 2025.

If you are at least 70½, QCDs allow you to donate your RMD to a qualified charity and receive a tax benefit. Your donation isn't limited to your RMD amount: You can donate up to $108,000 in 2025, up from $105,000 in 2024^*, and your donation counts toward your RMD requirement. Keep in mind that the tax benefit only applies to RMDs coming from a traditional IRA or an inherited IRA, not 401(k)s, and the charity must be qualified by the IRS.

The Secure Act 2.0 now also makes it possible to give a one-time annual gift of up to $54,000 for 2025:

• Gifts can go to a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT) or charitable gift annuity (CGA).
• For the gift to count, it must come from your IRA by Dec. 31.

The SECURE Act 2.0 update automatically will enroll new eligible employees in 401(k) or 403(b) plans starting in 2025, establishing a minimum pretax contribution equal to 3% of their wages. Contributions increase by 1% each year until the employee contributes at least 10%—though not exceeding 15%—of their earnings. Employees must opt out if they choose not to participate.

Church- and government-run plans, as well as new companies (less than three years old) and small businesses (under 10 employees) are excluded.

There always have been exceptions to early withdrawal penalties (e.g. death, disability, first-time home purchase, unreimbursed medical expenses, etc.), and those still apply.

The penalty for early withdrawals taken from retirement accounts before age 59½ is 10%. With over 28% of employees withdrawing from their accounts to pay for expenses, this was a significant loss of savings. The SECURE Act 2.0 creates additional exceptions for early withdrawal in the following situations:

• Anyone certified by a physician as having a terminal illness expected to result in death in the next 84 months has no withdrawal penalty. Such distributions may be repaid within three years.
• If the plan owner's residence is located in a federally declared disaster area and they experience disaster-related economic loss, they may withdraw up to $22,000 without penalty.
• Individuals experiencing domestic abuse may make hardship withdrawals of $10,000 or 50% of their vested balance, whichever is less. The withdrawal must be made within one year of the abuse and all or part can be repaid within three years.
• Beginning in 2026, it will be possible to withdraw the lesser of 10% of your vested balance or $2,500 (adjusted for inflation) for long-term care contract premiums.
• Workers under the age of 59½ may withdraw up to $1,000 per year without penalty for emergencies and can repay within three years. No other such distributions can be taken in the following three years unless the original distribution has been repaid, or future deferrals or contributions exceed the original distribution.
• Firefighters, corrections officers and other similar workers do not have a 10% penalty for distributions if they retire in the year they turn 50 or after. The exception also applies to an employee under age 50 who leaves with at least 25 years of service with the same employer.
  

Plan beneficiaries will be allowed to make penalty- and tax-free rollovers of unused funds from their 529 plan to their Roth IRA, provided certain criteria is met. This is a great option to repurpose unused 529 plan funds to help the beneficiary with saving for retirement.

Criteria:

• The 529 beneficiary must be the IRA owner and will need sufficient earned income to cover the rollover amount
• Rollovers will be subject to the annual Roth IRA limits in the year they are rolled, less any contributions you've previously made for the year (for example, 2024 and 2025 limits are $7,000 under age 50; $8,000 age 50 or older).
• The 529 plan must be at least 15 years old.
• Any contributions or earnings from the past five years are not eligible to be rolled into the Roth IRA.
• The lifetime maximum of funds rolled over is $35,000.

At Thrivent, we encourage clients to build up an emergency fund that could cover three to six months’ worth of expenses. We know that may feel daunting, especially if you’re devoting resources to other priorities, too.

The SECURE Act update allows employers to create emergency savings accounts (separate from retirement savings) for non-highly compensated employees with employee contributions of up to $2,500. Employers can auto-enroll employees and place up to 3% of their pay into them.

Employers can now match payments that plan participants make to their student loans by contributing to those workers' retirement plans—even if the worker does not contribute to the retirement plan themselves. This can help a worker establish a nest egg even if they may not be able to afford to contribute.

Part-time employees aged 21 and up who work at least 500 hours in each of three consecutive 12-month periods can participate in 401(k) and 403(b) plans. This option that was part of the original SECURE Act begins for plan years after December 31, 2024, and looks only at employment from that date forward to determine eligibility or vesting.