Financial Planning

The Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act”) was originally enacted in 2020 and provided significant benefits to retirees and those planning for their retirement. An enhanced version, SECURE Act 2.0, was signed into law at the very end of 2022, which made further changes and for the most part, improvements to the law. From IRAs to student debt, there is something for just about everyone. Here are highlights of the law that we believe are most relevant to you and your planning.

• The age at which participants must begin taking required minimum distributions (“RMDs”) has increased from age 72 to age 73 starting on January 1, 2023, and it further increases to age 75 starting on January 1, 2033. Note that if you turned 72 in 2022 or earlier, you must continue to take RMDs as scheduled.
• Starting in 2024, Roth accounts in employer retirement plans will be exempt from RMD requirements, just like they are for Roth IRAs.

• The penalty for failure to take RMDs has been reduced from 50% to 25% of the RMD amount not taken, with a further reduction to 10% if the RMD is corrected in a timely manner and noted on a corrected tax return. With the confusion surrounding RMDs, this is a welcome change.

• Starting in 2024, for taxpayers earning $145,000 per year or more (indexed for inflation), catch-up contributions will be considered Roth (i.e., after-tax) contributions,
• For plan participants age 50 or older, the catch-up contribution limit for 2023 is increased.
       o Most retirement plans: contribution limited to $7,500 (adjusted for inflation);
       o SIMPLE plans: contribution limited to $3,500 (adjusted for inflation);
       o IRAs: $1,000 (currently not adjusted for inflation; will be adjusted after 2023).
• Starting in 2025, a second catch-up will be available for participants age 60-63. The “second” catch-up limit:
       o Most retirement plans: $10,000;
       o SIMPLE plans: $5,000.

• The QCD rules were extended, allowing an IRA owner who is at least age 70 ½ to make payments directly to qualified charities with voluntary withdrawals and RMDs without income tax, up to $100,000 per year, which will now be indexed for inflation. Note that donor advised funds and private foundations do not qualify as qualified charities for this favorable tax treatment.
• Beginning in 2023, individuals age 70 ½ and older may elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to certain charitable trusts or a charitable gift annuity, thus expanding the type of charities that can receive a QCD.

• Starting in 2024, funds in a 529 account may be rolled into a Roth IRA without taxation. The 529 Plan account must have been opened for at least 15 years and a $35,000 lifetime limit applies. Further, 529 Plan transfers to a Roth are subject to the annual Roth IRA contribution limits.

The above highlights are just a few of the changes made by SECURE Act 2.0, and the rules can be quite tricky. If you have any questions about the changes and how they may affect you and your family, please do not hesitate to reach out to us and we will be happy to meet with you.