Perhaps the biggest change resulting from the Secure 2.0 Act of 2022 so far is the pushing back of required minimum distributions, or RMDs — which are essentially annual withdrawals that the government forces Americans to make from most types of retirement accounts so it can tax the income.
The federal law changed the age at which RMDs must begin from 72 to 73 for some people and to 75 for others. But this change, which took effect in 2023, was among the first of many in Secure 2.0, which was created in the final days of 2022. Many if not most provisions of the law have yet to take effect.
Following is a look at the provisions that will go into effect in 2024, and how they will change retirement laws as we currently know them.
1. Inflation adjustments for IRA catch-up contributions
Most annual contribution limits for retirement accounts — meaning the maximum amounts of money that the IRS lets Americans sock away in these tax-advantaged accounts each year — increase periodically to account for inflation.
One exception is the catch-up contribution limit for individual retirement accounts (IRAs), which is an additional amount that folks age 50 and older can save in their IRAs each year. This particular limit is not indexed for inflation, so it’s been stuck at $1,000 for years.
Starting in 2024, however, the IRA catch-up contribution limit will be indexed, enabling the IRS to increase it over time as costs of living increase, thanks to the Secure 2.0 Act.
2. No more RMDs for Roth 401(k)s
Again, required minimum distributions (RMDs) are essentially forced withdrawals. Anyone who has reached their RMD age must make RMDs each year if they have virtually any type of retirement account with the exception of Roth IRAs.
Under the Secure 2.0 Act, though, Roth 401(k) plans will be added to the list of exempt account types starting in 2024, letting Roth 401(k) owners breathe a long overdue sigh of relief.
You see, it never made sense and thus was arguably unfair for the government to require RMDs of Roth 401(k)s in the first place. Contributions to Roth accounts are post-tax, meaning accountholders already have paid income taxes on their contributions and therefore get to withdraw them tax-free.
Unlike with withdrawals from traditional accounts, like traditional IRAs and traditional 401(k)s, the IRS generally can’t collect taxes on Roth withdrawals, so the government never gained anything from RMDs on Roth accounts.
3. Inflation adjustments for qualified charitable distributions
Another cap that has not been indexed for inflation is the $100,000-per-year limit on qualified charitable distributions (QCDs), which are essentially donations made directly from a retirement account to a charity.
QCDs count toward your RMDs. Since RMDs are generally taxable income, donating a portion of your RMD to charity can lower your income taxes.
Thanks to the Secure 2.0 Act, the $100,000 limit on QCDs will be indexed for inflation starting in 2024.
4. Matching retirement contributions for student loan payments
Under the Secure 2.0 Act, employers can opt to “match” their workers’ student loan payments with contributions to the workers’ retirement accounts, starting with the 2024 retirement plan year.
This means that if you make a $500 payment toward your student loan, for example, your employer could make a $500 contribution to your 401(k).
According to the Senate Finance Committee, this provision of the law was “intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans.”
5. Rollovers from 529 plans to Roth IRAs
Secure 2.0 also allows for a limited amount of tax-free and penalty-free rollovers from 529 college savings plans into Roth IRAs starting in 2024.
These rollovers are limited to a total of $35,000 over the course of a 529 account beneficiary’s lifetime, and they are restricted to 529 accounts that have been open for more than 15 years.
So, if you started a 529 account for your child when they were young and they end up not needing all the money for college, such as if they received scholarships, up to $35,000 of the leftover 529 funds can be transferred to a Roth IRA without triggering a penalty or being subject to income taxes. This gives your child a jump-start on their retirement savings when they graduate.
6. An early-withdrawal penalty exception for emergencies
The government created retirement accounts like the 401(k) and IRA to encourage Americans to save for retirement. Lest you forget that, Uncle Sam can hit you with a hefty 10% penalty if you withdraw funds from a retirement account prematurely, usually defined as before age 59½.
There are some exceptions, though. You can dodge this early-withdrawal penalty if you use the money for certain purposes. Depending on the account type, these purposes currently can include covering unreimbursed medical expenses and college expenses, for example.
Starting in 2024, the Secure 2.0 Act adds an exception to this list for “certain emergency expenses.” Specifically, the law states that you may withdraw up to $1,000 per year “for purposes of meeting unforeseeable or immediate financial needs relating to necessary personal or family emergency expenses” without triggering an early-withdrawal penalty. The law even gives you the option to repay the amount to your retirement account over the next three years.
Just remember that unless you’re withdrawing prematurely from a Roth account, the withdrawal will be taxable. That is to say, the IRS will consider it income and you thus stand to owe taxes on it.
Say your federal income tax rate is 20%, for example, and you make an early withdrawal of $1,000 from your retirement account in 2024 to cover an emergency expense. While it won’t trigger a $100 penalty, it could increase your 2024 tax bill by up to $200.
Not to mention that your retirement account will be shortchanged by however much return on investment the $1,000 would have generated if you had left it in the account. So whatever Uncle Sam might say or do, always consider early retirement account withdrawals a last resort.
7. An early-withdrawal penalty exception for domestic abuse
Secure 2.0 also adds an exception to the 10% early-withdrawal penalty for domestic abuse starting in 2024.
This provision of the law states that within one year of any date on which someone is a victim of domestic abuse, the person may withdraw a total of either $10,000 or 50% of the value of their retirement account — whichever is less — without triggering the 10% penalty. (The $10,000 amount also will be indexed for inflation starting in 2025.)
The law defines domestic abuse as “physical, psychological, sexual, emotional, or economic abuse, including efforts to control, isolate, humiliate, or intimidate the victim, or to undermine the victim’s ability to reason independently, including by means of abuse of the victim’s child or another family member living in the household.”
The law also gives victims the option to repay the early withdrawal over the next three years and to be refunded for income taxes they paid on the repaid amount.
More to come in 2025 and beyond
The Secure 2.0 Act has just begun to go into effect. It contains provisions that will take effect as late as 2026, 2027 and 2028.
Notable provisions coming up in 2025 include:
- Requiring many employers to automatically enroll eligible workers in new 401(k) and 403(b) plans
- Increasing the catch-up contribution for workplace retirement plans for employees ages 60-63 to $10,000 (and, starting in 2026, indexing that amount for inflation)