SECURE Act 2.0 - Six Things to Know
Just before Christmas, Congress passed a bill containing the SECURE Act 2.0.
Here are six of the pieces we thought would be of particular interest to our clients, whether already in retirement or still saving to get there. Keep in mind, the full text of the bill is a mere 4,126 pages, so there’s obviously a lot more here!
Required Minimum Distributions (RMDs) get pushed down the line.
Bigger catch-up contributions for some, Roth mandated for others
529-to-Roth IRA rollover
SEP and SIMPLE Roth IRA options coming next year
Surviving spouse may elect new treatment
Employer matching contributions for student loan payments
RMDs: The age at which RMDs begin has been pushed back again, and no one should begin taking RMDs for the first time in 2023. Those born between 1951 and 1959 will start RMDs at 73 years old, and those born in or after 1960 will wait until age 75 to start RMDs.
Catch-up contributions: I really wish some of these rules were more straightforward. Exhibit A: catch-up contributions. For the first time, IRA catch-up contributions will be indexed to inflation in $100 increments. Previously, adjustments were made by Congress. Beginning in 2025, workers between the ages of 60 and 63 will have higher catch-up limits as well. The actual dollar limit depends on the type of retirement plan. Finally, some high-income individuals who participate in a 401(k), 403(b), or 457(b) plan will be forced to make after-tax catch-up contributions in Roth accounts, not allowing more pre-tax deferral.
529-to-Roth rollover: One of the most eye-catching provisions in the bill will allow for 529 assets – previously used exclusively for qualified education expenses – to be rolled into a Roth IRA for the beneficiary, not the owner. There are some important requirements that must be satisfied, and a few strings attached. For example, the lifetime maximum amount that could be rolled is $35,000, and it would be limited to the annual contribution limit each year, which is currently $6,500 for those under 50 years old. The 529 account must also be at least 15 years old, contributions made within the last five years are ineligible, and the child would need to have compensation to the extent of the dollars rolled to the Roth. Still, there seem to be some interesting planning opportunities for certain families given this new flexibility.
SEP/SIMPLE Roth IRAs: SEP and SIMPLE IRAs have been popular vehicles to help business owners and employees save for retirement. Previously, contributions to these plans were in pre-tax dollars and would grow tax-deferred, before being taxed as ordinary income in retirement. Thanks to SECURE 2.0, both SEP and SIMPLE IRAs will be available with Roth options as well, allowing after-tax contributions and tax-free withdrawals in retirement.
Surviving spouses: SECURE 2.0 gives surviving spouse beneficiaries a new option. Beginning next year, they will be able to elect to be treated as the plan participant, taking RMDs according to the deceased spouse’s schedule. This would seem to be beneficial in cases where the older spouse inherits a younger spouse’s retirement assets and they want to defer required distributions as long as possible.
Student loan employer match: Many younger savers have had to decide how to allocate discretionary dollars – save for retirement or pay down student debt. SECURE 2.0 provides some benefit to these individuals. Beginning in 2024, employers may match student loan payments in the form of retirement plan contributions.
Some of the details will take time to flesh out and we will continue to follow developments closely. As always, if you have questions about how this may impact your financial plan, college savings, retirement planning, legacy planning, or anything in between, please don’t hesitate to reach out to the Divvi team.
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