Since the passing of the SECURE Act in December 2019, there has been much discussion of a follow up bill to come. After three years, the sequel has finally arrived. SECURE Act 2.0 was passed on December 29, 2022 as a part of a broader $1.7 trillion spending bill, adding or making changes to more than 90 different retirement provisions.

We want to highlight a few of the more significant provisions in SECURE Act 2.0 as it has brought an array of changes to the retirement planning landscape, including:

• Raising the Required Minimum Distribution (RMD) age

• 529 College Savings Plan to Roth Individual Retirement Account (IRA) transfer, and other Roth changes

• Increased retirement catch-up contributions, and other company retirement plan changes

Raising the RMD Age

The law change that will likely affect the most people is the increase of the Required Minimum Distribution (RMD) age. Currently set at age 72 (increased from age 70.5 in the original SECURE Act), the new law raises the RMD age to 73 for those born between 1951 and 1959, and 75 for those born in 1960 or later. Unfortunately, for those who have already reached 72, there is no change. However, for any age, the bill reduces the penalty for missing an RMD from 50% to 25% of the undistributed amount, and down to 10% if it is corrected within a certain amount of time. Additionally, Qualified Charitable Distributions (QCDs), a tax-favored charitable giving technique, will now be indexed for inflation from the current $100,000 limit. 

529 Education Account to Roth IRA Transfers and Other Roth Changes

When planning for education, the question of overfunding 529 education accounts needs to be considered. Fortunately, the new law provides additional flexibility making overfunding less of a concern than before. Beginning in 2024, excess 529 funds may be transferred to a Roth IRA for the 529 beneficiary. This transfer opportunity is subject to multiple limitations including the 529 account must be at least 15 years old, the total lifetime transfer is capped at $35,000, and funds contributed (or earnings attributable) in the last five years cannot be transferred. Fortunately, this transfer does not have any income caps like regular Roth IRA contributions.

Additional Roth related changes include the elimination of Roth 401k RMDs beginning in 2024 and the creation of Roth SEP and SIMPLE IRAs (with participants subject to income tax on company contributions).

Increased Retirement Catch-Up Contributions and Other Company Plan Changes

In addition to indexing the IRA catch-up limit to inflation starting in 2024, the new law creates additional savings opportunities via an increase in the catch-up contribution for 401ks and similar plans for individuals ages 60 to 63 beginning in 2025. This allows for more savings in the years leading up to retirement.

For small business owners, there are increased credits for starting a new workplace retirement plan for employees, and new rules related to student loan payments as eligible for employer matching contributions.

The SECURE Act 2.0 has brought many other changes in addition to those outlined above. In the coming months, we will be assessing how these changes may impact your unique financial situation. If you have specific questions or would like to schedule a meeting, please let us know.

If you or someone you know have questions about the current investing landscape, please contact us today at 615-370-1253.

All investing involves risk, including the possible loss of principal. Nothing contained herein should be construed as individualized advice and is for informational purposes only. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client's investment portfolio. Past performance is no guarantee of future performance.