How the SECURE Act 2.0 Could Affect Retirement in California

  • Post last modified:August 10, 2023

The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 was passed by Congress in 2022 as part of a government spending bill. The SECURE Act 2.0 represents significant reforms to retirement planning regulations, bringing some of the most sweeping updates to the rules governing retirement accounts in recent history.

While the original SECURE Act was passed in 2019, the SECURE Act 2.0 expands on those reforms.

Some of the most impactful provisions relate to required minimum distributions (RMDs) for Californians nearing retirement age or already retired. Here’s an overview of what the SECURE Act 2.0 changes and how it could affect retirement planning in California:

Raising the RMD Age to 73

Previously, under the SECURE Act, the age for taking required minimum distributions (RMDs) was raised from 70 1⁄2 to 72. Now, the SECURE Act 2.0 raises the RMD age further to 73. This change gives Californians an extra year before withdrawing funds from their retirement accounts and paying taxes on those distributions. Pushing back the RMD start date allows retirement assets to grow tax-deferred for one more year, providing more flexibility in timing distributions. The new rule could help Californians better manage their income streams and tax liability in retirement.

Higher Catch-Up Contribution Limits

One meaningful change introduced by the SECURE Act 2.0 is the increase in catch-up contribution limits for those approaching retirement age. Catch-up contributions allow workers 50 and older to make additional contributions to workplace retirement accounts like 401(k)s beyond the standard deferral limits.

Under the SECURE Act 2.0, the annual catch-up contribution limit will rise to $10,000 starting in 2023 for 401(k), 403(b), and 457(b) plans. Previously, the limit was $6,500 per year. This provision allows older workers to make significantly higher catch-up contributions in the years leading to retirement.

For Californians in their 50s and 60s who are behind on retirement savings, this expanded limit presents a valuable opportunity to bolster their nest egg before retiring. The extra contributions help make up savings shortfalls and take advantage of compounding investment returns in tax-advantaged accounts.

With the high cost of living in many parts of California, this increased flexibility to save more toward retirement can provide peace of mind. Older Californians who maximize catch-up contributions yearly could grow their account balances by thousands of dollars more before retiring.

Eliminating RMDs for Some Inherited Accounts

Previously, non-spouse beneficiaries who inherited a retirement account were required to withdraw funds within ten years following the account owner’s death. The SECURE Act 2.0 eliminates this rule for beneficiaries with less than $12.7 million in combined inherited accounts.

This provision could benefit heirs in California who inherit large retirement accounts. Without mandated RMDs, beneficiaries have more flexibility in managing the tax implications and timing of withdrawals.

While the SECURE Act 2.0 offers some expanded options for retirement planning, it’s still essential for Californians to get professional financial guidance. An advisor can help analyze your situation and determine the best strategies to maximize benefits under the new rules.

Navigate the SECURE Act 2.0 with a California Lawyer

Are you nearing retirement and worried about how the SECURE Act 2.0 could impact your financial future? Need help navigating these sweeping changes? Book a consultation with a California estate planning attorney. Let us help you understand how the new regulations can be leveraged to your advantage.