Military Families: 10 Ways the SECURE 2.0 Act Impacts Your Retirement
February 15, 2023
You may have heard of the SECURE 2.0 Act that was passed in December of 2022, but aren’t sure how it impacts your finances as a Veteran. The military financial professionals with AAFMAA Wealth Management & Trust (AWM&T) are here to highlight key components and provide guidance. If at any time you’d like to reach out to one of our Relationship Managers, we’re ready to serve you.
In the meantime, here are 10 ways the SECURE 2.0 Act may affect your military family’s finances and what you need to know.
SECURE 2.0 and Military Retirement
1. RMD age changes
A required minimum distribution (RMD) is the amount of money from a qualified retirement plan that must be withdrawn at a certain age. This includes an employer-sponsored retirement plan, a traditional IRA, a SEP, and a Simple 401(k) or IRA. The previous age to begin taking RMDs was 72, but in 2023, the distribution age increases to 73 (for those born in 1951-1959) and in 2033 it increases to age 75 (for those born 1960 or later). Additionally, beginning in 2024, individuals will no longer be required to take RMDs from Roth 401(k) accounts and Roth Thrift Savings Plan (TSP) accounts. For more on RMDs, read our white paper, “Avoid the 4 Costly RMD Mistakes,” here.
2. Reduction in missed RMD penalties
Prior to this new legislation, a missed RMD resulted in a hefty penalty of 50%. Effective immediately, the SECURE 2.0 Act has reduced this penalty to 25%, and possibly to 10% if corrected in a timely fashion within the “correction window.”
3. Changes for government 457(b) participants
This is the most common retirement savings plan used by state and local government employers and nonprofit organizations. Effective immediately, 457(b) participants can change their deferral percentage anytime during the month.
4. Military spouse eligibility credit
Beginning in 2023, participating employers are encouraged by a tax credit to allow military spouses to participate in their employer’s contribution plan within the first two months of employment. Additionally, spouses are immediately eligible to receive matching employer contributions and will be 100% vested. For more on military spouse retirement, please see our article "Why Military Spouses Should Consolidate Retirement Accounts.”
5. Catch-up contributions
Participants in employer-sponsored plans who are age 60 to 63 will be eligible for a higher catch-up contribution beginning in 2025. This increased catch up will be the greater of $10,000 or 150% of the regular catch-up contribution limit indexed for inflation. Starting in 2024, the IRA catch-up contribution amount of $1,000 will be indexed for inflation.
6. “Rothification” is mandated
Effective 2024, if an employee earns over $145k of wages subject to FICA tax (U.S. Federal payroll tax), they are mandated to direct catch-up contributions to a Roth account.
7. Employers can match Roth
Previously, employers were only able to match employee contributions into the traditional, pre-tax portion of the retirement savings. Beginning in 2023, employers can match contributions directly to a Roth retirement plan, which marks a shift from taxable to tax-free savings for you. Please note that at this time, the vesting schedule is unclear, and you may need to wait until you’re fully vested (for example, after the account is open for five years). More details to come as they are released.
8. Qualified charitable distributions
A qualified charitable distribution (QCD) from an IRA is allowable for those age 70.5 and older. The amount has been capped to up to $100k per year per account owner since QCDs became available in 2006. Effective 2024, this amount will be indexed with inflation.
9. Use of retirement funds for emergencies
There are two main provisions related to emergency savings starting in 2024. The first would permit individuals to withdraw up to $1,000 per year from their retirement accounts without a 10% penalty. This would need to be repaid within three years in order to take future withdrawals. The second would allow non-highly compensated employees to segregate up to $2,500 of post-tax contributions into an emergency fund. Withdrawals would be permitted up to four times per year without penalties, taxes, or fees.
10. 529 Rollover to Roth IRA
Beginning in 2024, beneficiaries of a 529 plan can rollover up to $35,000 to their Roth IRA. Beware, there is some fine print. The beneficiary must have earned income. Additionally, the 529 plan must have been open for more than 15 years and rollovers are subject to annual contribution limits. Contributions and earnings made to the 529 within the last five years are ineligible to be moved to the Roth.
Secure Your Retirement
Do you have questions about your military family’s retirement? An AAFMAA Wealth Management & Trust Relationship Manager is here to serve you and map out your financial strategy. Start the conversation or give us a call at 910-307-3500.