SECURE Act 2.0 - Official
SECURE Act 2.0 is now on the books. Below are some highlights. I am not covering everything in this new legislation as it is way too much. Instead, I am focusing on those areas hitting my clients. However, if you have a deep desire to know everything about SECURE 2.0, feel free to click this link to the full legislation. The language for SECURE Act 2.0 starts about halfway through this 4,100+ page document. Enjoy😊
- It was roughly 3 years ago the original SECURE Act was passed.
- Let’s start with RMDs. Required Minimum Distributions. This is when Uncle Sam says it is time to start taking money out of all the tax-deferred accounts in which you have never paid taxes. Such as your IRAs.
- For those born between 1951 and 1959, your new RMD age is 73. Born in 1960 and later the RMD age will be 75.
- If you were born in 1951, your RMDs start in 2024. No one starts taking RMDs in 2023.
- There is a bit of a conflict with some language for those born in 1959 and it says RMDs start at both 74 and 75. I expect there will be a correction before that deadline actually occurs.
- Now, you can still make Qualified Charitable Distributions (QCDs) starting at age 70 ½. This does not change with the new RMD rules. QCDs are when you can turn your RMD into a charitable contribution.
- Additionally, with QCDs, the annual contribution amount will now be adjusted based on inflation. This adjustment takes place in 2024.
- Going back to those who will have to start RMDs at age 75, I love this from a financial planning perspective. Many of my clients are members of GenX and younger Boomers. They fall into the category of being born in the 60s. This pushed back RMD allows us more time to do Roth conversions.
- Speaking of Roths, there are some significant changes to RMDs for Roth 401ks and similar employer Roth accounts. The short version is before this new Act, balances in Roth 401ks had to follow traditional RMD rules. Starting in 2024, there are no more RMDs for employer plan Roths. And just to clarify, there have never been RMDs for regular old Roth IRAs and there will continue to be none as a result of this Act.
- Also with Roths, you can now create SIMPLE and SEP Roth accounts. Previously you could only do pre-tax contributions to these types of accounts.
- It looks like those making $145,000 and above who wish to do catch-ups in their employer plans (401ks) will have to make those catch-ups as Roths beginning in 2024. I am sure I will share more details on this later this year as the details are fleshed out.
- Depending on your nerd level, you may have seen a headline or two about 529 to Roth rules in the SECURE Act 2.0. This goes into effect in 2024. I won’t get into the details here as they are complex, but it is not something available for everyone. Mostly due to the rules along how long the 529 has to be open, when it was last funded and the beneficiary of these accounts. Odds are I will cover this in more detail later since it does not start until 2024. Just don’t get sucked in by the headlines.
- There will also be new rules for inherited retirement accounts starting in 2024. This is for surviving spouses. Again, short version is surviving spouses could choose to treat themselves as the one who passed away, at least as far as these rules apply. There are some regulations that need to be clarified over the course of this year, but this looks like something that will benefit surviving spouses where the spouse who passed away was younger.
- IRA catch-up contributions will now be indexed with inflation starting next year. The increases will be in $100 increments.
- Here’s a good, but complex one. Starting in 2025, those aged 60, 61, 62 and 63 can make higher catch-up contributions to their employer retirement accounts. It is looking like the amount will be $10,000, but it could be higher based on inflation. Regardless, get ready for the ability to sock away a bit more in employer accounts starting in a few years. At least for those respective 4 year time frames of 60-63. Also, there are increases for plans like SIMPLE plans, but the amounts are smaller.
- Another big part of the new Act is language allowing people to access their retirement funds during times of emergencies. The list of qualifying events is a long one. Just know it has expanded and if there is ever a situation you may need to access these funds, you may now qualify.
- The RMD distribution penalty will be reduced from 50% to 25%. And if it corrected during a correction window the penalty goes down to 10%.
- There are a ton of other changes in the new Act. Again, I am hitting the highlights I expect to see within my practice.
- One last comment of something not included in the bill. There is no language eliminating the Backdoor Roth or the Mega Backdoor Roth. This was a hot topic a few years ago. I am not saying the issue is dead, but it is at least not changing now.