The SECURE 2.0 Act of 2022 made significant changes to retirement savings plans in an effort to enhance access, improve savings rates and simplify processes for employees and employers alike. It built on the SECURE Act of 2019 (Setting Every Community Up for Retirement Enhancement), which expanded access to retirement plans and raised the age for required minimum distributions. SECURE 2.0 goes further, offering greater measures to encourage retirement saving, ensure that workers are automatically enrolled in plans, and increase flexibility for both employees and employers.

The following are the most notable changes introduced by SECURE 2.0:

1. Increased age for required minimum distribution (RMD) — Individuals must start withdrawing a portion of their retirement savings once they reach a certain age. The new law raised the RMD age from 72 to 73 starting in 2023 and will further increase it to 75 by 2033. This extension allows retirees to leave their savings in their accounts longer.

2. Automatic enrollment for new 401(k) and 403(b) plans — Starting in 2025, employers must automatically enroll employees in these retirement plans. The default contribution rate is between 3 percent and 10 percent and will increase by 1 percent each year until reaching 10 percent. This change aims to counteract the present low participation in such plans.

3. Catch-up contributions — Individuals who are behind in retirement savings can, beginning at age 50, make catch-up contributions up to certain limits, so that they can accelerate their contributions during peak earning years. Beginning in 2025, people of ages 60 to 63 can contribute the greater of $10,000 or 50 percent more than the regular catch-up amount.

4. Roth contributions — Employees are now able to make Roth contributions to their retirement accounts. These are made with after-tax dollars and grow tax-free. The change in the law gives employees more flexibility in diversifying their retirement tax strategy.

5. Expanded access for long-term part-time workers — Previously, workers needed three consecutive years of 500 hours of service to qualify for an employer-sponsored retirement plan. SECURE 2.0 shortens this to two consecutive 12-month periods, making it easier to qualify.

6. Student loan matching contributions — Employees can now have their employers make contributions to their retirement accounts that matching their student loan payments. This can relieve employees of having to choose between paying down debt and saving for retirement.

7. Emergency expense distributions from retirement accounts — Employees are allowed to take early distributions from their retirement accounts to cover unforeseeable or immediate financial needs. Up to $1,000 can be withdrawn once during a year, without the 10 percent tax that usually applies to early distributions. 

The changes introduced by SECURE 2.0 may warrant re-evaluation of estate plans strategies, especially for individuals with significant retirement assets. An experienced Connecticut estate planning attorney can help you in taking proactive steps to preserve your wealth for future generations. 

Gesmonde, Pietrosimone & Sgrignari, L.L.C. in East Haven and Hamden advises Connecticut residents on wills, trusts and other methods of achieving their estate planning goals. To set up a consultation with an experienced lawyer, please call 203-745-0942 or contact us online.