There was good news for those saving for retirement in the recent appropriations bill passed to fund the government, signed into law by President Biden on December 29, 2022. The larger bill included a set of retirement reforms called SECURE 2.0. A kind of sequel to the SECURE Act passed by the Trump Administration in 2019, SECURE 2.0 makes it easier to save for retirement, easier to preserve savings in retirement, and easier for businesses to provide retirement benefits. While there was normal debate about individual provisions, SECURE and SECURE 2.0 were both jointly sponsored by Democrats and Republicans and had broad bipartisan support.

We do not expect the new law to have a direct impact on markets, but it is very likely to have an impact on how people save for retirement and how businesses provide retirement benefits. Here are highlights of some of the more important provisions in the bill. Note that this is just a high level overview and many provisions go into effect at various times over the next few years or may have specific requirements or limits.

• SECURE 2.0 raised the age at which retirement plan minimum distributions must begin from 72 to 73, effective in 2023, and eventually to 75 (in 2033), allowing retirement plan participants who do not need distributions immediately to have a longer period to potentially accumulate tax-deferred gains.
• For those generally younger workers who may be missing out on employer matching funds because they need to prioritize student loan payments over saving, employers may now make matching retirement contributions based on student loan payments.
• Catch-up contribution limits for those near retirement have been increased.
• Steep penalties for missing required minimum distributions, often a result of oversight rather than an intention to abuse the law, have been decreased, especially in cases where the mistake is redressed quickly. Self-correction of inadvertent mistakes also won’t require submission to the IRS.
• The law also establishes a national database of retirement accounts so that no one has to worry about forgetting about an old account, already a problem and one that is likely to increase as people switch jobs more often.
• The law makes it possible to create emergency savings accounts within a 401(k) that will allow limited withdrawals of up to $1,000 without penalty.
• Certain unused assets in 529 plans, a tax-advantaged plan used to pay for educational expenses, will now be allowed to be rolled over into a Roth IRA.
• New plans will have auto-enrollment and automatic increases over time. However, there is no requirement to start a plan.
• The law has several provisions that make it easier for businesses to provide retirement benefits, including enhancing tax credits for small businesses starting and maintaining a retirement plan.
• Opportunities to save on a Roth basis in several types of retirement accounts have been expanded.

Making it easier to save for retirement is a solid win and the law does an effective job addressing the challenges faced by those at different stages of saving for retirement as well as those already in retirement. Please consult a financial professional to understand how SECURE 2.0 might affect you and how you might be able to take advantage of the new provisions.

---

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. For more information on the risks associated with the strategies and product types discussed please visit https://lplresearch.com/Risks  

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Unless otherwise stated LPL Financial and the third party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

Securities and advisory services offered through LPL Financial, a registered investment advisor and broker-dealer. Member FINRA/SIPC.

Tracking # 1-05354195