Secure Act 2.0 Retirement Planning Update

Matthew R. Adams - Jan 05, 2023
Congress just passed a $1.7 trillion-dollar Omnibus Spending Bill named the “Consolidated Appropriations Act of 2023.” This bill includes a few significant changes to retirement planning in what...

Congress just passed a $1.7 trillion-dollar Omnibus Spending Bill named the “Consolidated Appropriations Act of 2023.” This bill includes a few significant changes to retirement planning in what is being dubbed “SECURE Act 2.0.” The original “SECURE Act” was passed into law in December 2019 and made various changes to IRA provisions, such as pushing back the Required Minimum Distribution (RMD) age to 72 as well as eliminating the “stretch IRA” provision for most beneficiaries and replacing it with a 10-year inherited IRA distribution rule.

We highlighted below what we believe to be the most generally applicable changes for our client base:

  • The new legislation raises the RMD age from 72 today to 73 starting on Jan. 1, 2023, and to 75 starting on Jan. 1, 2033. Meaning, if you turn 72 after 12/31/22, your RMD age will now begin at age 73. Please note the IRA Qualified Charitable Distribution (QCD) age remains the same at age 70 ½.
  • Impact: this allows more time for potential Roth conversions and/or smoothing out IRA distributions over time.
     
  • In 2023, people aged 50 and older will be able to contribute a $7,500 a year “catch up” to 401k-style accounts (currently $6,500/year). The bill would raise the catch-up amount to at least $11,250 a year for people aged 60 to 63 starting in 2025.
  • Impact: larger contributions to qualified retirement plans in your prime earning years.
     
  • In 2023, employer “matching” contributions to 401k-style retirement plans will be allowed on a Roth basis. Employee participants will be subject to income tax on such matching contributions.
  • Impact: more after-tax Roth money can be saved in qualified retirement plans. 
     
  • The bill will also allow people to roll up to $35,000 from a 529 college savings plan account into Roth IRA for the beneficiary. That would be available only for accounts in existence at least 15 years and rollovers would be subject to annual Roth contribution limits.
  • Impact: a wealth transfer opportunity for parents/grandparents concerned about over funding their beneficiaries’ 529 plan accounts.
     

Please let us know if you would like to discuss how this legislation specifically applies to your unique financial situation.