The SECURE Act 2.0 – What Military Members Need to Know

If you’ll recall, back in 2019, Congress passed the Setting Every Community Up for Retirement Enhancement or SECURE Act, to help Americans better prepare for retirement. To further enhance this legislation, the SECURE Act 2.0 was signed into law in 2022 with dramatic changes to the retirement planning landscape.

Doesn’t ring a bell? That’s understandable since many of these “dramatic” changes came during a time when the world was facing some other challenges.

Yet, here we are, and a number of these changes are upon us. So, let’s review several updated retirement rules that could impact Service members and their families.

Milspouse Retirement Savings

If you’re a military spouse, you know that it can be challenging to stay employed long enough to become eligible for your employer’s retirement plan or to vest in employer matching contributions.

Here is a bit of good news. The SECURE Act 2.0 encourages small business (through the use of tax credits) to accelerate retirement plan eligibility for Milspouses.

In simple terms, businesses with less than 100 employees can earn tax credits if they make spouses of active-duty Service members:

1. Immediately eligible for plan participation within two months of hire.
2. Eligible for any matching or nonelective contribution that they would have been eligible for otherwise at 2 years of service.
3. Immediately 100 percent vested in all employer matching contributions.

This provision helps Milspouses to begin participating in employer retirement plans faster and helps military families save more for retirement with additional employer-funded contributions.

Employer Retirement Plan Match for Student Loan Debt

In 2024, employers can provide a match into 401(k) plans, 403(b) plans or SIMPLE IRAs for workers who make “qualified student loan payments.” Employees with student debt often feel torn between paying off their debt and saving for the future. If they opt for paying off their student loan debt, they may not be able to take advantage of their employer’s contributions to employer-provided retirement plans, like 401(k)s. This change in the law helps employees do both.

While the Thrift Savings Plan (TSP) has not mentioned offering this match for participants, Milspouses interested in the match should check their employer’s retirement plan.

New “Saver’s Credit” Matching Benefits (2027)

This change is still a couple of years away, but starting in 2027, the federal government will match 50% of retirement plan contributions up to $2,000 for individuals earning up to certain income limits.

Under the old law, the Saver’s Credit provided millions of low- and middle-income individuals with a tax credit when they made contributions to IRAs, employer retirement plans and ABLE accounts. The credit created an incentive to save for retirement each year and can be valuable to Service members, especially ones with low taxable income — think deployment.

Increased Age for Required Minimum Distributions (RMDs)

Not long ago, retirees were required to begin RMDs or withdrawals from their retirement accounts when they reached 70½. Since most retirement savings was done in pretax accounts — think 401(k)s, IRAs, etc. — required distributions would result in taxes owed on these dollars.

The SECURE Acts increased the RMD age to 73 in 2023 and to age 75 in 2033. This change provides military retirees with more flexibility in managing their retirement accounts and taxes.

Additionally, RMD requirements are removed entirely from Roth TSP accounts. Historically, Roth IRAs had no RMDs, but Roth monies in employer-sponsored retirement plans did. This allows your money to keep growing tax-deferred longer. Note, this change is only true while the participant is still alive.

Reduced Penalties for Missed RMDs

Good news, you’ll shell out less money to the IRS, for missed or late RMDs. The SECURE Act 2.0 reduced the penalties for missed or late RMDs from 50% to 25% of the amount you should have taken out. The penalty is further reduced to 10% if you correct the discrepancy within two years. You can avoid paying any penalties by taking your RMDs on time and by taking the correct amount.

This information is not intended as legal, tax or other professional advice, and should not be used as a substitute for consultation with a tax or legal professional.

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