SECURE Act 2.0

The SECURE (Setting Every Community Up for Retirement Enhancement) Act 2.0 is an update to the SECURE Act that passed in 2019. The following is a partial outline of changes – there are nearly one hundred in total – along with what this could mean for you or a family member. Please feel free to share this with anyone you think may be affected by these changes.

The Required Minimum Distribution (RMD) age is pushed back to 73 for those born between 1951 and 1959 and pushed back to 75 for those born in 1960 and later. Prior to the SECURE Act 2.0, the RMD starting age was 72. Consequently, those turning 72 in 2023 do not need to take an RMD, as well those turning 73 in 2023 (as they were born in 1950). This implies that no new RMDs will begin for 2023. If you were already taking RMDs (or began taking them at age 72 in 2022), you need to continue taking them in 2023 and each subsequent year. Delaying the income of an RMD by one year may create an additional year for Roth IRA conversions and should take into account the ages and tax considerations of beneficiaries. Qualified charitable distributions (QCDs) can still begin at age 70; however, as part of the annual limit for QCDs, a one-time gift up to $50,000, adjusted annually for inflation, may now be made to a charitable remainder unitrust or annuity trust (CRUT/CRAT) or a charitable gift annuity.

Other notable planning considerations impacting a broader range of individuals include:

Beginning in 2023:

• Employer matching and nonelective contributions to retirement plans can be made to a Roth 401(k), in contrast to today’s requirement that employer contributions be made with pre-tax dollars. If directed this way, contributions are taxable to the employee.

Beginning in 2024:

• Catch-up contributions (currently $1,000) to IRA accounts for individuals aged 50 and older will be indexed annually for inflation.
• If wages from employer are greater than $145,000, any catch-up contribution made by employees over age 50 must be made to a Roth option within the qualified retirement plan (e.g. 401(k)) and thus are considered after-tax contributions.
• RMDs are no longer be required from Roth 401(k) and similar qualified retirement plan accounts, equalizing the distribution rules with Roth IRAs.
• Employers will be able to “match” payments employees make to student loan debt by making contributions to an employee’s retirement plan account, effectively treating the debt repayment in a manner similar to salary deferrals to the retirement plan.
• Subject to limitations, College Savings 529 plan balances can be transferred into a Roth IRA in the name of the beneficiary. The limitations include:
  • The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan.
  • The 529 plan must have been maintained for 15 years or longer.
  • Any contributions to the 529 plan within the last 5 years (and the earnings on those contributions) are ineligible to be moved to a Roth IRA.
  • The annual limit for how much can be moved from a 529 plan to a Roth IRA is the IRA contribution limit for the year, less any ‘regular’ traditional IRA or Roth IRA contributions that are made for the year (in other words, no doubling up with funds from outside the 529 plan).
  • The maximum amount that can be moved from a 529 plan to a Roth IRA during an individual’s lifetime is $35,000.

Beginning in 2025:

• Employers with more than ten employees establishing new 401(k)s and similar plans are required to automatically enroll eligible employees and set contribution/deferral rates at 3% of compensation with 1% annual increases until at 10% of pay; employees retain the option to opt-out of these rules.
• Catch-up contributions to qualified retirement plans (e.g., 401(k)) for those who are ages of 60 to 63 will increase to a limit of $10,000 or 150% of the regular catch-up limit for those ages 50 and over (2023 current regular catch up = $7,500).

As with most legislation, the details matter and it merits a longer discussion on how best to plan for you and your family With thoughtful planning, a significant impact accrues over many years.

Who does this affect and what should you do? We have only highlighted some of the provisions that passed as part of SECURE Act 2.0. Our ask is that you please contact us and give us the opportunity to help you and your family take advantage the opportunities now available to you. It would be an honor to be of value.

This article is for informational purposes only.