Understanding The Secure Act 2.0
Congress has approved big changes though a series of new laws, known as the Secure Act 2.0 that can help 401(k) and IRA holders save more money in these retirement accounts. Here are the major changes physicians should know:
Required minimum distributions
Currently, the required age to start taking RMDs from a retirement account is 72. With the upcoming changes, that age will increase to 73 in 2023 and 75 in 2033.
The penalty for missing RMDs is also being reduced from 50% of the withdrawal amount to 25%. If taken by the end of next year, the amount falls to 10%.
Changes have also been made for surviving spouses. Starting in 2024, a spouse inheriting a retirement account will be treated as the deceased account holder for RMD purposes. If a surviving spouse is younger than the deceased, they may be able to delay RMDs. For Roth 401(k)s, required distributions are done away by the Secure Act 2.0 for living account holders.
Increased catch-up contributions
Currently, physicians over 50 can invest an additional $7,500 to their 401(k)s or 403(b)s as catch-up contributions. Starting in 2025 for those ages 60-63, this amount will increase to $10,000. For those making at least $145,000, all catch-up contributions are subject to Roth (post-tax) treatment in 2024.
Additionally, instead of a flat $1,000 extra per year, the IRA catch-up limit will be increased for inflation each year starting in 2024.
Hospitals can now automatically enroll their employees in their 401(k)s and 403(b)s. Starting in 2023, physicians earning under $150,000 qualify for these accounts and can save up to $2,500. Any additional contributions will be diverted to a Roth account.
The legislation requires hospitals starting new retirement plans in 2025 or after to automatically enroll their employees in a 401(k) and 403(b) plan. The contribution will start at 3% of the employee’s salary and will automatically increase by 1% each year.
Emergency 401(k) and IRA withdrawals
To make it easier in the case of emergencies, funds from your retirement account can be withdrawn penalty-free. Specifically, one emergency distribution up to $1,000 will be permitted each year starting in 2024. However, if you do not repay that $1,000 in three years, you cannot take another distribution during that time.
Roth 401(k) matching
Unlike previously, employers can now offer Roth matching contributions enabling physicians to pay taxes on their Roth match and be able to take it out later tax-free.
Penalty-free 529 fund roll over
Starting in 2024, beneficiaries of 529 accounts that have been opened for at least 15 years can roll over up to $35,000 into a Roth IRA. Keep in mind, this amount is subject to the annual contribution limit for Roth IRAs.
Student loans and retirement
Even if you are not contributing, hospitals can make matching contributions into a retirement account for physicians that are making student loan payments. This allows borrowers to start saving for retirement while paying down their debt. This also applies to those with 403(b)s, 457(b)s and SIMPLE IRAs.
National 401(k) registry
The bill creates a national lost-and-found registry for 401(k)s, rather than state operated. The registry will be in the form of an online database that would allow physicians to search for their plan administrator.