In its first iteration in 2019, the SECURE Act, or Setting Every Community Up for Retirement Enhancement, set the stage for substantial changes to the way Americans save for their post-career lives. The “sequel” of sorts that was passed late last year, known as SECURE Act 2.0, will impact just about everybody. With more than 90 provisions in the Act, it will have a sweeping effect on retirement savers.
More flexibility and time are among the benefits across the board in investors’ favor as they prepare for retirement. But the Act’s provisions, many of which will go into effect rather quickly, are worth discussing with your financial advisor as soon as possible, to ensure that you can maximize the benefits according to your specific circumstances.
You have more time before your first required minimum distributions (RMDs).
Under SECURE 2.0, the starting age for RMDs has been pushed back again from age 72 to 73. This will stay in effect for 10 years, then beginning in 2033, the starting age will be moved back again to age 75.
The delay is a benefit for the self-employed that are working longer, or anyone who is trying to defer taxes as long as possible. However, the real opportunity lies in converting or distributing out funds before distributions become mandatory.
It’s possible to delay your first RMD to April 1 of the year after you turn 73, but each year after that one, you will need to complete an RMD by December 31. If you fail to do so, penalties have been cut from 50% of the undistributed amount to only 25%. It’s important to work closely with your financial advisor to prevent delays and avoid a higher tax liability, inadvertently.
Leftover money in an education savings plan? Roll it over to a Roth.
A particularly unique benefit concerns the fate of leftover cash in a 529 education savings account. Beginning in 2024, up to $35,000 of this amount can be rolled over into a normal Roth IRA account. There are a few caveats, however. The 529 must have been in existence for at least 15 years, and the beneficiary of the Roth IRA needs to be the same would-be beneficiary of the 529.
Student loan matching could alleviate a common “either-or”.
Many student loan borrowers, irrespective of their income levels, defer retirement savings in order to pay down their student loan balances. With the recent Supreme Court loan forgiveness ruling, this may be a welcome development for younger employees, and it’s one that will enable employers to make matching contributions to a retirement plan based on a team member’s student loan payment amount. This benefit will commence in 2024.
Qualified charitable distributions see several changes to account for inflation.
An impending change from SECURE 2.0 will mean that qualified charitable distributions, or QCDs, can be used to fund split-interest entities with distributions up to $50,000. Those applicable include a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT), or charitable gift annuities (CGA), all of which are vehicles under IRS rules. This is a suitable way to both manage gifts and effectively manage tax liabilities. But here, too, it’s important to have an experienced hand to guide you through the process.
Both the one-time $50,000 limit and regular annual limit of $100,000 will also be indexed to inflation every year in increments of $1,000.
This list is far from exhaustive. Not only are there more general benefits contained within the SECURE Act 2.0, but you and your financial advisor may discover unexpected benefits and conditions based on your portfolio, personal situation, and retirement needs. It’s news from Washington worth celebrating.