10 Ways Secure 2.0, Part of Spending Bill, Changes Retirement Planning

Section 109: Higher catch-up limit to apply at age 60, 61, 62, and 63.

The limit on catch-up contributions for 2021 is $6,500, except in the case of SIMPLE plans, for which the limit is $3,000. This section increases these limits to the greater of $10,000 or 50% more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62 and 63. The increased amounts are indexed for inflation after 2025. The measure is effective for taxable years beginning after Dec. 31, 2024.

Section 110: Treatment of student loan payments as elective deferrals for purposes of matching contributions.

This section allows employees to receive matching contributions by reason of repaying their student loans. It permits an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.” The measure is effective for contributions made for plan years beginning after Dec. 31, 2023.

Section 115: Withdrawals for certain emergency expenses.

The section provides an exception for certain distributions used for emergency expenses, which are unforeseeable or immediate financial needs. Only one distribution is allowed per year of up to $1,000, and a taxpayer has the option to repay the distribution within three years. No further emergency distributions are allowed during the repayment period unless repaid in full. This section is effective for distributions made after Dec. 31, 2023

Section 126: 529 plan rollovers to Roth IRAs.

This section amends the Internal Revenue Code to allow for tax- and penalty-free rollovers from 529 accounts to Roth IRAs, under certain conditions. Beneficiaries of 529 college savings accounts would be permitted to roll over up to $35,000 over the course of their lifetime from any 529 account in their name to their Roth IRA. These rollovers are also subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years. This section is effective with respect to distributions after Dec. 31, 2023.

Section 203: Insurance-dedicated ETFs.

This section directs the Treasury Department to update the regulations to reflect the exchange-traded fund structure to provide that ownership of an ETF’s shares by certain types of institutions that are necessary to the ETF’s structure would not preclude look-through treatment for the ETF, as long as it otherwise satisfies the current-law requirements for look-through treatment.

This essentially would facilitate the creation of a new type of ETF that is “insurance dedicated.”

Section 203 is effective for segregated asset account investments made on or after seven years after the date of enactment of the legislation.

Section 303: Retirement savings lost and found.

This section creates a national online searchable lost and found database for Americans’ retirement plans at the Labor Department. The database will enable retirement savers, who might have lost track of their pension or 401(k) plan, to search for the contact information of their plan administrator. This section directs the creation of the database no later than two years after the date of enactment.

Section 314: Penalty-free withdrawal from retirement plans in case of domestic abuse.

Section 314 allows retirement plans to permit participants that self-certify that they experienced domestic abuse to withdraw a small amount of money (the lesser of $10,000, indexed for inflation, or 50% of the participant’s account). A distribution made under this section is not subject to the 10% tax on early distributions, and a participant has the opportunity to repay the withdrawn money over three years and will be refunded for income taxes on money that is repaid. This section is effective for distributions made after Dec. 31, 2023.

(Image: Chris Nicholls/ALM)