Secure 2.0 is a part of the consolidated appropriation act passed on December 29, 2022. It contains 92 provisions touching on a variety of qualified retirement plans, IRA provisions, and a few other saving related provisions. With almost 300 pages of content to digest, understanding Secure 2.0 can be daunting.
We sat down with two of our firm’s wealth management advisors,ÌýGerald Wernette, CPA, CEBS, AIFA®, C(K)P®, CEPAÌý²¹²Ô»åÌýSteven Gibson, CFA,Ìýto discuss Secure 2.0 and understand what provisions may cost you, what requires immediate attention, and how it all affects you.
What could cost you?
When we look at this bill, provisions will be mandatory or optional with some give and take. Provisions may also come with a financial effect. Take for example the provisions that touch on catch-up contributions and those on tax deferral plans. These are both highly utilized by individuals near retirement age to help them save more.
On the giving side, the bill includes a provision allowing those 60-63 to give a larger catch-up contribution. However, on the cost end the bill also includes a provision stating individuals making more than $145,000 a year must put that catch-up contribution in a ROTH, therefore they can’t get the tax deduction when making the deferral, but they will have the benefit of not paying tax when they withdraw these future Roth contributions.
There are still many questions around the ROTH catchup implementation. Consider failed testing for example. Historically, if you put money in and it fails you can get it recharacterized as a catch up. But what happens if it is put into ROTH rather than pretax? How does that impact taxes? Little intricacies like this need to be addressed when the IRS issues guidance.
The next stepsÌý
The great news is these provisions are not happening all at once. A handful took effect in 2023 with more to come in 2024, 2025, and beyond. Some provisions are optional, allowing the plan sponsor to determine whether to implement them. The 2023 optional provisions included:
- Allowing employees to decide if they want employer matching or non-elective contributions treated as ROTH contributions. Before Secure 2.0 all employer contributions were on a pre-tax basis.
- Employers can allow employees to self-certify for hardships. Historically, it was the plan sponsor’s duty to collect the documentation and determine if a hardship request met the requirements. More recently, recordkeepers have assisted with that certification.Ìý Now, participants can self-certify their hardship requests.
When it comes to the mandatory provisions, it’s important to understand what the record keeper/payroll providers plan to implement to reprogram their systems. Make sure you have clear communication with your record keepers and an implementation plan is in place.
Due DiligenceÌýÌý
At the end of the day, do your due diligence. Every employer is going to have to invest energy into reviewing these provisions. With optional and mandatory provisions going into effect on different dates there will be a lot of dependency on record keepers, payroll providers, plan administrators and investment advisors to understand how these provisions will have an impact on other provisions in your plan.
If your organization does not offer a retirement plan, provisions within Secure 2.0 can lessen the burden to start one. Start-up incentives can now cover up to 100% of plan related costs for 3 years for organizations with under 50 participants, as well as provide additional credits for employer contributions.
If you have questions,Ìýcontact us todayÌýto connect with a °ÄÃÅÁùºÏ²Ê¿ª½±½á¹û×ßÊÆͼ wealth manager and retirement specialist.
Investment advisory services offered through °ÄÃÅÁùºÏ²Ê¿ª½±½á¹û×ßÊÆͼ Wealth, a Registered Investment Advisor. Securities offered through °ÄÃÅÁùºÏ²Ê¿ª½±½á¹û×ßÊÆͼ Financial Network LLC, member FINRA/SIPC.Ìý Ìý
