Financial Planning

SECURE Act 2.0 and Your Retirement

By February 15, 2023 No Comments

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was highly anticipated legislation that contained significant provisions regarding retirement planning options for small businesses and individuals. The two most drastic of these changes included disallowing a “stretch” provision for non-spouse beneficiaries of IRAs and moving the needle of the “Required Minimum Distribution” from age 70 ½ to age 72.

Although the SECURE Act 2.0 passed at the end of 2022 may not have anything quite as huge as the “death of the stretch,” there are over 100 provisions that affect different people different ways. The following are most likely the ones to affect our clients:

  1. Required Minimum Distribution Changes – The age to start distributions is extended to age 73 as of January 1, 2023. Starting 1/1/2033, this age will be kicked out to age 75 (little trick – no NEW people are required to take RMDs in 2023). The penalties for failing the RMDs are also being cut in half, but let’s try not to have this be an issue. (Little Note – Many people are applauding this, but keep in mind this means less years to distribute your taxable IRAs, meaning bigger distributions in fewer years, and therefore the possibility of additional taxes)!
  2. Changes in Catch-Up Retirement Limits – In 2023, if you are over age 50, you can contribute $22,500 and an extra $7,500 in “catch-up” contributions. Starting in 2025, if you are age 60,61,62,63 – but not 64,65, etc. (not our idea) you will be able to contribute $10,000 as the catchup amount, increased with inflation. (Little Note – Because of inflation, the $10,000 may not be so significant of an increase, so we will see how this plays out).
  3. Changes in Catch-Up Retirement Catch-up Contributions – This is going to be a big one for high income earners. For individuals earning $145,000 or more, all catch-up contributions at age 50 or older will need to be made to a Roth account in after-tax dollars. (Tip – If you have a solo 401(k), you may have to update your plan document to allow for Roth contributions).
  4. Matching for Roth accounts – Currently your employer may make a matching contribution to your 401(k). This is money you will have to pay taxes on later. However, now (depending on your employer) you may be able to elect to take this contribution as “income,” be taxed now and be able to maintain the contribution in a Roth account.
  5. Emergency Savings – Your employer may be able to add an emergency savings provision which is a designated Roth account eligible to accept participant contributions for non-highly compensated employees starting in 2024. Contributions would be limited to $2500 annually and the first 4 withdrawals would be tax and penalty free.
  6. 529 Plans – The new act allows for used 529 dollars to be rolled into a Roth IRA for the beneficiary after 15 years, subject to annual limits. It is still not totally clear on whether a change in beneficiary would restart the 15-years and we are eager for more guidance.

This is just the surface in provisions, and feel free to reach out to discuss your individual situation.

Keeping your plan up to date is a work in progress, and we look forward to discussing this with you at your next review. Whether you are looking for a review, one-time plan or investment management services, reach out here to start a conversation.

Investment advisory services offered through LW Advisors L.L.C., a Registered Investment Advisor in the state of Iowa.

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