By: Jarrell Ochoco 

SECURE 2.0 Act of 2022 was signed into law on December 29, 2022. The changes are intended to build upon the SECURE Act of 2019. Both Acts collectively address new benefits related to retirement and savings to attract employers to offer retirement plans and to encourage employees to contribute.

Key provisions

Required Minimum Distributions (RMDs). Starting January 1, 2023, participants are required to begin taking distributions from their retirement plans at age 73 and then to age 75 in 2033.

Penalty-free on early distributions. A 10% tax penalty applies to early distribution before reaching age 59-1/2. The penalty for early withdrawal is waived for terminally ill  individuals.

Higher catch-up limit. Under current law, participants aged 50 and older are permitted to make a catch-up of $6,500. The limit is increased to $7,500 per year in 2023. Starting in 2025, the limit will increase to $10,000 for participants aged 60 to 63.

Credit for small-employer pension plan startup costs. Under current law, small businesses with up to 50 employees are eligible for 50% administrative costs of a $5,000 annual cap as startup credit. Beginning 2023, the applicable percentage is increased to 100% in the first two years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year.

Gift cards. The new law enables employers to offer small incentives like gift cards in small amounts to encourage employee participation in retirement plan.

Roth employer matching. Under current law, employer matching contributions must be on a pre-tax basis only. The new law allows employers to provide participants with the option of receiving matching contributions on a post-tax basis.

IRA charitable distribution. The new law allows a one-time $50,000 distribution to a qualified charitable distribution.