In the midst of all the chaos that comes with the whole Christmas season, you may not have realized that as part of the massive Omnibus Bill signed by Congress to avert a government shutdown, significant legislation was passed related to your retirement accounts.

The SECURE Act of 2022 commonly known as Secure 2.0 was signed into law on December 29, 2022. The legislation’s primary purpose is to strengthen our nations retirement system and help Americans become more prepared for retirement. Today, I thought I would highlight a few of the provisions of this law and how they might personally affect you or someone you know.

First and foremost, the law will have a major impact on those in, or very near retirement. Much like the first Secure Act signed by President Trump in 2020, this law increases the age in which Required Minimum Distributions must begin. This time, increasing the age from 72 to 73, and to age 75 starting in 2033. The law also reduces the penalty for failing to satisfy such minimum distributions from 50% down to 25%.

The law also makes changes to restrictions currently in place for retirement account contributions. The catch-up provision that permits workers age 50 and over to contribute additional amounts to employee retirement plans such as 401k’s was increased from $6,500 to $7,500 and beginning in 2025, it will be increased to $10,000 for those between the ages of 60 and 63. In addition to these increases in contribution limits, the law also removes the restrictions that were in place that disallow employer match’s from being contributed to Roth accounts within employer sponsored plans.

For those of you who are younger, Washington didn’t forget about you either. One of the biggest changes for young people will begin next year when employers begin being permitted to match employee student loan payments with contributions to an employer sponsored retirement plan, much like they currently can match retirement contributions.

An additional change in the law relevant to younger people is the ability to roll 529 college savings account balances into Roth IRA accounts in the name of the beneficiary of the 529 after 15 years.  This provision, which will begin on Jan 1, 2024, provides those who didn’t use all their college savings funds to transfer them to a retirement account in their name with no penalties or additional taxes owed.

In response to the growing number of Americans that are living paycheck to paycheck, the law will also make available penalty free distributions from retirement accounts of up to $1,000 for those experiencing “emergencies”. These emergency distributions are permitted once every three years or once per year, if the previous withdrawal is returned in less than three years.  For those who are victims of domestic violence this penalty free withdrawal amount is increased to $10,000, and all penalties are removed from distributions made by those diagnosed with a terminal illness if returned within 3 years.

This assistance in helping American’s cope with emergencies doesn’t stop there. Beginning in 2024 sponsors of individual retirement plans will be able to set up and contribute to “emergency savings accounts” within their plan that will permit up to four withdrawals per year tax and penalty free.

While I do appreciate the sentiment and intentions behind much of this new law, I have several serious concerns about the unintended consequences of some of these new rules. Particularly to those who seek to abuse them. In next week’s column I will break down these concerns in detail.

In the meantime, I would encourage you to take a look at the final version of this law yourself, there are many more elements to it than I was able to discuss in this column, and you never know which ones might specifically impact you and your situation.

(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)