Some Interesting Items in SECURE 2.0 Act
The SECURE 2.0 Act is a comprehensive bipartisan retirement legislation signed into law on December 29, 2022. We wrote about the first SECURE Act in this space back in January 2021 (Finer Things - January 2021) and felt compelled to highlight a few key items in the new law and what they mean to you.
- Required Minimum Distribution (RMD) age increases from 72 to 73
The age 72 trigger for taking RMDs is raised to age 73 for individuals who attain age 72 on or after January 1, 2023. For those who are turning 72 in 2023 and were expecting to be required to take their first RMD, you get a one year reprieve. SECURE 2.0 also indicates that the RMD age will be pushed back again to 75 for individuals who turn 75 in 2033 or later.
Deferring the RMD age can benefit those who are able to fund their lifestyles without tapping into their IRAs by keeping income taxes lower, which also may reduce premiums for Medicare Part B and Part D. Medicare premiums are tied to income, and distributions from pretax retirement accounts (like IRAs) raise a taxpayer’s income. Simply put, delaying that bump to annual income can keep premiums lower for longer.
- Some changes to Qualified Charitable Distributions (QCDs)
SECURE 2.0 Act expands the IRA Charitable distribution provision to allow for a one-time transfer of up to $50,000 to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts (although transfers to Donor Advised Funds are still not allowed). Charitable gift annuities are an interesting way to support 501(c)-3 organizations and causes that you care about while giving you a stream of income during your life.
Although the annual limit for QCDs is currently remaining at $100,000, beginning in 2024 the maximum QCD amount will be indexed to inflation.
- Some changes to 529 plans
SECURE 2.0 Act has a provision that lets savers roll money from 529 plans to Roth IRAs free of income tax or penalties. The rollover measure takes effect in 2024 and does have some limitations…these include:
- A $35,000 lifetime cap on transfers
- Rollovers are subject to the annual Roth IRA contribution limit (currently $6,500 in 2023)
- The 529 account must have been open for at least 15 years (without a change of beneficiary—a change restarts that 15 year clock)
- The rollover can only be made to the BENEFICIARY’s Roth IRA, not that of the account owner (in other words, the “child’s” IRA and not the parent’s)
- Any contributions or earnings on those contributions in the last five years cannot be rolled over
This is significant change from a planning perspective. In the past, we have mostly advised clients not to “overfund” their 529 accounts. Previous options for someone who graduated college with funds still remaining in their 529 included the account owner changing the beneficiary to another child, using the funds for graduate school or further education, or even letting funds grow for future use by a future child or grandchild (facilitated by changing the beneficiary). This new provision offers the flexibility to potentially fund both education and kick-start the retirement savings for beneficiaries, giving another attractive option for eligible unused funds.
Over my 30-year career, there have been too many changes in legislation for me to count. One constant is that our Weiss Wealth Strategies team will keep up with them and how to best implement the appropriate value-added strategies for you!
-Gary Weiss, February 2023
