By Ryan Turbyfill, MBA Financial Advisor
While we were enjoying the holiday season, Congress was busy passing an omnibus spending bill that included the Secure Act 2.0. This has many significant changes to many clients financial planning in one aspect or another, much like the Secure Act 1.0 which passed in December of 2019. Below we’ll highlight many of the most significant changes and will discuss with clients on impacts to their unique financial planning and how to strategize around these changes.
Required Minimum Distributions (RMD) Much like Secure Act 1.0 moved RMD age back, 2.0 did the same thing. For those born in 1951 to 1959 the new RMD age is 73 years old. Then another step up in 2033, moves the RMD age to 75 years old for those born in 1960 or later.
RMD for Roth Plan Accounts Previously only Roth IRA accounts did not have RMD requirements, however now Roth Plan Accounts such as Roth 401k, Roth 403b and Roth 457b don’t have Required Minimum Distribution requirements either.
Roth for SIMPLE and SEP IRA’s Previously Roth deferrals were not allowed for SEP or SIMPLE IRA’s which are popular plans for self employed or small companies. Now Roth SEP and Roth SIMPLE IRA’s are an option. However, many custodians have not made this available yet as they are updating their systems and understanding the details of this change.
529 to Roth IRA Transfer The popular education account, the 529 used to have limited options without penalty if all funds were not used by the beneficiary of the plan. Starting 2024 unused funds can be transferred into a Roth IRA for the beneficiary, however there are some stipulations. 1) The 529 must be open for 15 years or more 2) Limited to $35k 3) Contributions in the last 5 years are not eligible to transfer 4) There is an annual limit depending on contributions directly to a Roth or Traditional IRA
Increased Plan Catch Up Contributions for those in their early 60’s For those who are 60-63 years old, there is now an additional catch up to that that was already in place to those over 50years old. Those 60-63 y/o will have the catch up increased to $10k or 150% of regular catch-up contributions in 2024 and after. SIMPLE IRA’s catch up 60-63y/o increases to greater of $5k or 150% of catch-up contribution for 2025. For exact specifics, please reach out.
One-Time Opportunity To Use QCD To Fund A Split-Interest Entity. Starting in 2023, those over 70.5 years old have a one-time opportunity to use a QCD (Qualified Charitable Distribution) to fund a Charitable Remainder UniTrust (CRUT), Charitable Remainder Annuity Trust (CRAT), or Charitable Gift Annuity (CGA).
Emergency Withdrawals Beginning in 2024, an “emergency withdrawal” of $1,000 or less will not be subject to the normal 10% penalty for those under 59.5 years old. There are some rules around this such as only allowed every 3 years, prior distributions must be paid back, etc.
Auto Enrollment Starting in 2025, most new 401k and 403b plans will be required to have an automatic enrollment for employees.
ABLE Accounts Expanded to Older Disabled Individuals Currently, only those under 26 years old are able to open an ABLE account, however in 2026 the age will be extended to those under 46 years old. Why wait to change the law until 2026?? Who knows….
What Didn’t Change There was talk that the Back-Door and Limits on Roth Conversions were on the table; no changes made to that. With the changes in Required Minimum Distribution age, the age for QCD (Qualified Charitable Distributions) remained at 70.5 years old.
There are many other changes, but above are some of the highlights. Additional changes include things like many catch up contributions are deemed Roth, Student Loans payments can be matched inside a retirement plan, many part time workers become eligible for 401k’s and even a “lost and found” online database to search for lost retirement accounts.