Secure Act 2.0: Key Changes

Secure Act 2.0: Key Changes

When you woke up this New Year it is very possible that you missed the latest and greatest in key changes that stemmed from Congress passing the Secure Act 2.0.  I must admit after years of not much in substantial changes in the retirement world, the past few years have been a whirlwind.  It is quite difficult to keep up with, but the good thing for you I’ll attempt to lay out the changes that are most prevalent and relevant to you.

Key items to know about the Secure Act 2.0:

Required Minimum Distributions (RMD)–

As most of you know you are required to take money out of your retirement accounts at a certain age.  It used to be 70.5 for the longest time, although most recently it changed to 72.  With the new Secure Act that age is pushed back even further.  If born in 1950 or earlier, you are still at the age of 72 (or 70.5 age) for RMDs.  However, if you are born between 1951-1959, you now aren’t required to take funds out until age 73.  For those of you who are born in 1960 or later, that age is pushed back even further to 75 years old.

Roth Accounts–

There have been a sweeping number of changes to Roth Accounts.  For starters, if you have a Roth 401(k) you are no longer, starting 2024, required to take RMDs at all on these accounts.  This more closely aligns the law with Roth IRAs.  Additionally, starting in 2023 you are now eligible to open and fund a Roth Simple IRA and SEP IRA.  This is a huge improvement for small business owners wishing to offer or contribute to a Roth account. 

Sticking with the Roth news, now if you contribute to a Roth 401(k), and have an employer match, those match dollars will go into the Roth portion of your 401(k) not the pre-tax portion as it previously had.  One thing to note, those dollars will be taxable to the plan participant.  Furthermore, if you earn $145,000 or more and are 50 years or older, you MUST contribute your catch-up dollars into the Roth 401(k) not pre-tax 401(k). 

529 to Roth IRA-

OK, this one is pretty neat if you ask me.  Starting in 2024, if you have a 529 that has been opened for at least 15 years there is an interesting planning opportunity due to Secure Act 2.0.  You can now use up to $35,000 of those funds, for the beneficiary of the 529 accounts only, to contribute to a Roth IRA regardless of earning limit.  Now, be careful you are still limited to the amount each year the government allows to be contributed (ex. $6,500 this year) and no contributions or earnings within the past 5 years are eligible. 

Surviving Spouse Beneficiary-

I’ll make this one quick, otherwise, it will be really long ha.  In 2024, if your spouse predeceases you, there is the option to treat the retirement plan as the deceased spouse’s for age eligibility.  Previously, you could leave it in the deceased spouse’s name, but still, certain provisions would be based on your age.  This now opens the ability to essentially treat the entire retirement account as if the decedent was still alive.  Now, the only real reason to do this is if the deceased spouse is younger than you are, as this will open up more options than forcing these funds into your own name. 

Increased Catch-up Provisions-

This is one of the odder things being added if you ask me, and quite nuanced.  Due to both those facts, I’ll keep it succinct although there are many more tentacles of this new provision.  Starting in 2025 if you are age 60, 61, 62, or 63 your catch-up amount on your 401(k) plan will be the higher of $10,000 or 150% of the regular catch-up contribution amount indexed for inflation.  Odd right? 

Qualified Charitable Contribution-

Starting in 2024 the QCD amount is now indexed to inflation.  The amount you previously could pull out and send directly to a charity was $100,000 for the longest time.  Moving forward, this amount will go up each year based on inflation figures.  This is a great charitable tool for those so inclined and at the appropriate age.

The list goes on

There are about a dozen other provisions I could sit here and write about but figured try to keep this to the broad brush strokes.  Lots of changes coming and truthfully most of them are for the positive.  Some are small and some are quite impactful, but I am a firm believer in every bit counts.  Hope you found this helpful and wishing everyone a wonderful 2023 ahead.

Stay wealthy, healthy, and happy!

If you prefer to watch our blogs, here is the video version: