On December 29 2022, President Biden signed the Consolidated Appropriations Act 2023, funding Federal Government operations through September of 2023. Of the 4000 plus pages of the bill, 130 pages dealt with the SECURE 2.0 Act of 2022. SECURE 2.0 is an enhancement of the original SECURE Act of 2019 that dramatically changed retirement and estate planning for many Americans. The changes in the new act are less pronounced but still worthy of review. There may be a nugget that applies to you. Here are some of the highlights:

  • An increase in the age for starting Required Minimum Distributions (RMDs) from qualified retirement accounts. For individuals born between 1951 and 1959 the start date for taking RMDs increases from 72 to 73. For people born in 1960 or later, their first RMD will not be until they turn 75. This change allows these accounts to continue to grow tax free for a longer period of time. This could be a sizable benefit for those who do not need to tap their retirement accounts.
  • Starting in 2024, individuals will no longer need to take RMDs from qualified employer plan Roth accounts (Roth 401k, Roth 403b, etc.). This will allow the money to stay in the account and continue to grow.
  • The new law allows for the creation of SIMPLE (Savings Incentive Match PLan for Employees) and SEP (Simplified Employee Pension) Roth IRAs. The will be attractive to employees of smaller companies that rely on SIMPLEs and SEPs for their employee retirement plans.
  • 529 College Savings Plans are a wonderful way to put money aside for future education expenses. But what if the 529 plan has money left over after the child finishes school? Or the child does not go to college? Beginning in 2024, if the 529 plan has been in existence for 15 years or more, the money (up to $35,000) can be transferred to a Roth IRA for the child. There are stipulations so be sure to read the fine print and talk to your financial advisor.
  • Many people did not save for retirement in their early working years and are scrambling to catch up as they near retirement. SECURE 2.0 creates several new provisions for catch-up contributions. Your financial advisor will be happy to go over the details with you.
  • Qualified Charitable Distributions (QCDs) are a tax advantaged way to do charitable giving from an IRA. The present limit is $100,000 per year. Starting in 2024 this figure will be indexed to inflation allowing for greater philanthropy for those able to give at this level.
  • The magic age for withdrawing retirement funds from qualified accounts without a 10% penalty is 59 ½. While there have always been exceptions, the new law expands the number of exceptions making it easier for people going through hardship to access retirement funds without penalty.
  • Mistakes happen. Previously, if you failed to take a Required Minimum Distribution, the penalty was 50% of what you should have taken out, OUCH! SECURE 2.0 reduces the penalty to 25%. But if the oversight is corrected in a timely manner (the IRS defines this) the penalty is only 10%.

This is a brief overview of some of the changes that will affect retirement savers. For a detailed application of the new law to your situation, be sure to contact your JGUA advisor.