The “Setting Every Community Up for Retirement Enhancement” Act, otherwise known as the SECURE Act, was originally enacted in 2020 and is designed to make changes to retirement account requirements. Just recently, in December 2022, the SECURE 2.0 Act was enacted to make further adjustments to retirement requirements.
How will this legislation affect you and your retirement savings? Here are some highlights:
RMD Age Increased in 2023: The age for required minimum distributions (RMDs) to begin is increased to 73 starting in 2023. This age will increase again to 75, but not until January 1, 2033. If you do not want to take an RMD or pay the corresponding tax bill for as long as possible, this is welcome news. This provision is helpful if you do not need the money, and it also provides another few years of potential Roth conversions without concerns about RMDs.
QCDs Expanded: There is good news if you are charitably inclined, have an IRA, and are age 70½ or older. Starting in 2023, a one-time only, $50,000 qualified charitable distribution (QCD) can be made to a charitable gift annuity, charitable remainder unitrust, or charitable remainder annuity trust. The $50,000 amount is included in the annual $100,000 QCD limit. It is not in addition to that maximum.
Roth-O-Mania Is Here: Are you ready for more retirement savings opportunities with Roth IRAs? Congress opened the door to more Roth possibilities in its search for immediate tax revenue.
Beginning in 2023, SEP and SIMPLE IRA plans can allow Roth contributions. Also, plans can allow employer matching contributions to be made on a Roth basis. Starting in 2024, all plan catch-up contributions for age 50-or-over, higher-income employees must be Roth contributions.
Rollovers from 529 Plans to Roth IRAs: Effective in 2024, SECURE 2.0 allows rollovers from 529 plans to Roth IRAs.
Did your child earn a scholarship? Did the beneficiary of a 529 account decide not to go to college and now there are funds remaining in the account? If you had concerns about what to do with funds left over in a 529 plan, this may be a good strategy to employ. Leftover 529 funds can now be rolled over to a Roth IRA in the name of the 529 beneficiary. However, there are restrictions. For example, the 529 plan must have been in place for 15 years, annual rollovers cannot exceed the annual Roth IRA contribution limit, and total lifetime rollovers cannot exceed $35,000.
More Catch-Up Contributions: If you are nearing retirement, SECURE 2.0 brings more savings opportunities. Starting in 2025, individuals who are ages 60, 61, 62 and 63 will be eligible to make larger catch-up contributions to their work plans. Also, the IRA catch-up contribution limit, which has been stuck at $1,000, will be indexed for inflation beginning in 2024.
No Lifetime RMDs for Roth Plans: Do you have a Roth account in your employer plan? Here is a welcome change. Unlike Roth IRAs, Roth accounts in workplace plans have been subject to RMDs during the owner’s lifetime. Beginning in 2024, this will no longer be the case – Roth plan dollars will be excluded from the RMD calculation.
RMD Penalty Changes: SECURE 2.0 reduces the penalty if you miss an RMD from a hefty 50% to 25%. Additionally, if you correct the missed RMD in a timely manner, the penalty is further reduced to 10%.
Other Notable Changes
Effective 2023: Early distributions 10% penalty exception:Terminal illness. Plans and IRAs. No maximum
• QCD $100,000 limit increased for inflation
• Matching plan contributions can be made on student loan payments
• Higher SIMPLE plan limits for deferrals and catch-ups and nonelective contributions
• Plan catch-ups must be Roth if wages were greater than $145,000 (indexed) in the prior year
Effective 2026: Early distributions 10% penalty exception: Long-term care insurance premiums up to $2,500/year (plans only)
Effective 2027: Saver’s Match: 50% of IRA or plan deferrals (up to $2000) by low-income savers
Effective 2033: RMD age raised to 75
The SECURE 2.0 implemented many changes and it can be difficult to understand them all; as well as which ones are most pertinent to YOUR financial goals. Luckily, it is our job to know the legislature and assist you accordingly. We are happy to breakdown this complex legislation to help simplify your financial planning. Please contact our office at 605-357-8553 in Sioux Falls or 605-352-9490 in Huron, or firstname.lastname@example.org with any questions.