SECURE Act 2.0: Retirement Planning Opportunities

Many of you may have already heard about SECURE 2.0 Act of 2022 which was signed into law on December 29, 2022. The following is a brief outline of some of the provisions of SECURE 2.0 that are most likely to impact our clients – now and in the years to come.

As with many broad legislative changes, it pays to wait for some of the dust to settle and other agencies such as the IRS to provide additional guidance. We will continue to monitor these changes and how they can benefit you.

In the meantime, here is what you need to know:

I. RMD Starting Age Pushed Back (Again)

The Change:

The age at which retirees must begin required minimum distributions (RMDs) was already increased to 72 from age 70 ½ with the SECURE Act of 2019. SECURE Act 2.0 increases the age requirement further to age 73 beginning January 1, 2023, increasing it to age 75 by January 1, 2033. There was no change to your ability to further delay taking RMDs from your 401k if you are still working and not a 5% owner.

What It Means for You:

This translates into additional years of flexibility regarding the income you take from their portfolio. This gives you greater control over your taxable income as well as your exposure to Medicare’s Income Related Monthly Adjustment Amount. 

Additional Considerations:

• There is no impact to the age at which QCDs can be made.
• This change will not impact you if you need to use the income from those accounts to live on in those years.
• Offers those who can afford to wait extra time to plan and optimize their tax situation.

II. Roth Changes and Considerations

There were quite a few changes to Roth accounts, including:

• Elimination of RMDs for employer-sponsored Roth accounts, such as Roth 401(k)s and Roth 403(b)s, to align with individual Roth practices. (effective 2024)
• Establishment of Roth versions of SEP and SIMPLE IRAs. (2023)
• Ability for employers to make matching contributions to Roth retirement accounts. (2023)
• Ability to move 529 assets into a Roth IRA. (2024) 
• For employees who are 50 and older with more than $145,000 (inflation adjusted) in wages from the previous year, they must designate their catch-up elective deferrals as Roth contributions. If the employer doesn’t have a Roth option, then the employee cannot make a catch-up contribution. (2024)
• Exemptions from required Roth contribution for catch-up include self-employed individuals and IRA catch-up contributions.(2024)

What This Means for You:

The main opportunity here is your ability to build more tax efficient assets for retirement; however, the toll is potentially higher taxes in the current year. High earners are still unable to make direct Roth IRA contributions, so this new change actually allows you to build tax-free assets.

Additional Considerations: 

• What has not changed about Roths, although there’s been talk that it might, is that there are still no restrictions on “backdoor Roth conversions” and similar strategies. 
• Note, there may be a delay in establishing these new types of Roth accounts (SEP and SIMPLE) to allow for custodians and the IRS to implement the necessary rules and procedures.
• If you’ve already begun taking Roth 401k RMDs, you should be able to stop doing so in 2024.

III. Increased Catch-up Contributions

The Change:

Beginning in 2025, Participants in employer provided 401k/403b retirement plans and who are ages 60, 61, 62 or 63 will be able to increase their catch-up contributions to $10,000 or 150% of the regular catch-up amount. However, in many instances, the updates also require high-wage-earners ($145,000/year or higher) to direct their catch-up contributions to after-tax Roth accounts.

What This Means for You: 

You may wish to update your annual contribution to these accounts, especially if you are nearing retirement.

IV. Limited 529-to-Roth IRA Transfers

The Change:

SECURE 2.0 establishes a path for families to transfer up to $35,000 of untapped 529 college saving plan assets into the beneficiary’s Roth IRA. With proper planning, this may help families start their children’s or grandchildren’s retirement savings with their unspent college savings.

There are a few stipulations regarding this change:

• The Roth IRA 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 are not eligible.
• The annual limit for how much can be moved from a 529 plan to a Roth IRA is based on annual contribution limits for a Roth as established by the IRS.
• The maximum allowed during an individual’s lifetime is $35,000.

What This Means for You:

This new provision has many complexities and nuances to consider as you are saving for a significant financial goal such as college. We can work with you to implement a strategy to meet your college funding goals and possibly look to convert assets to a Roth if it aligns with your goals.  

Next Steps

As we mentioned above, this list is by no means extensive. The broad-ranging SECURE Act of 2019 sequel introduces nearly 150 new provisions taking effect in 2023 that will enhance retirement programs for plan participants and sponsors alike. The provisions we listed above are those that we believe will have the most impact on our clientele.

Since these are just a few of the many changes, it’s important you keep us informed of any changes to your financial circumstances so we can help you navigate any areas the SECURE 2.0 Act may impact.

Melissa Sotudeh

Director of Advisory Services