SECURE Act 2.0, which became law in December 2022, includes many beneficial changes that may help you better reach your retirement and other financial goals. But which provisions might affect you the most, and when can you start planning for new opportunities?
There are still some unknowns as regulators, retirement plan administrators and employers work through the logistics. However, we can help you identify and implement strategies to take advantage of SECURE Act 2.0 benefits, as it takes effect over the coming years.
Here are opportunities to explore:
If you're in retirement...
1. Consider how the new RMD ages will impact your retirement withdrawal strategy
What SECURE Act 2.0 changed: The law increased the required minimum distribution (RMD) age first from 72 to 73 years old, and then to 75 in 2033.1
Opportunity to explore: Consider how you may use the additional time and flexibility to manage your retirement withdrawals strategically. However, fewer years to take RMDs can have potential tax and estate planning implications. Connect with us to discuss how delaying RMDs may impact your broader financial picture.
What investors should consider: While the new RMD ages may be welcome news to some, holding money in pre-tax accounts until RMDs begin isn't always the best strategy due to:
- Tax and Medicare implications: Because some Medicare premiums and Social Security taxation are determined by your income, taking out more in RMDs in your later years could result in higher Medicare surcharges and higher taxes.
- Estate planning implications: Inherited retirement plan assets generally must be distributed within 10 years by a non-spouse beneficiary. If your account balances are high, this can increase the taxes beneficiaries pay on their inheritance.2
2. Can you take advantage of the increased limits for qualified charitable distributions in 2024
What SECURE Act 2.0 changed: The limit on qualified charitable distributions (QCDs), which has been capped at $100,000 since its introduction in 2006, is now indexed for annual inflation beginning in 2024 and increased to $105,000. Changes under the new law also allow for a one-time gift of up to $50,000 from an IRA to a split-interest entity that increased to $53,000 for 2024.3
Opportunity to explore: If you plan to transfer funds from an IRA to a charity, you can donate a larger amount starting in 2024. Additionally, though the RMD age has increased, the age at which you can start taking QCDs remains 70½. Taking advantage of QCDs before you reach your RMD age can potentially help you reduce taxes now and reduce your RMDs in later years. This strategy is supported by the benefits introduced under the SECURE Act 2.0.
What investors should consider: QCDs are only available from IRAs and not from 401(k) plans.
If you are saving for retirement …
3. You may have the opportunity to make bigger catch-up contributions beginning in 2024 and 2025
What SECURE 2.0 Act changed: IRA catch-up contribution limits are now adjusted for inflation each year.4 (IRA catch-up limits were previously fixed unless an increase was approved by law.) Starting in 2025, employees who are 60 to 63 years old will be able to make larger catch-up contributions to 401(k), 403(b), 457(b), SIMPLE IRA and SIMPLE 401(k) plans.5
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New limits for catch-up contributions
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IRAs and Roth IRAs
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$1,000 catch-up indexed for inflation
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401(k), 403(b) and 457(b) plans
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The greater of $10,000 or 150% of the normal catch-up limit beginning in 2025
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SIMPLE IRAs and SIMPLE 401(k) plans
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The greater of $5,000 or 150% of the normal catch-up limit beginning in 2025
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Opportunity to explore: The new limits can help boost your retirement accounts during your final working years. Talk to a financial advisor about how you may want to free up cash flow to take advantage of the increased limits when they go into effect.
What investors should consider: If the employee’s prior-year wages exceeded $145,000, the catch-up contribution must be made as a Roth contribution for non-IRA plans beginning in 2026. A financial advisor can help you evaluate the benefit of these Roth contributions.
4. Consider how Roth changes can help you reach your financial goals
What SECURE 2.0 Act changed: RMDs are now eliminated for Roth 401(k) accounts.6 Additionally, effective this year, the new law allows for employer matching or profit-sharing Roth contributions and Roth contributions to SEP and SIMPLE IRAs.
Opportunity to explore: These changes increase the number of options an investor can leverage to diversify their retirement portfolio, from a tax perspective. Many investors gravitate toward tax-deferred accounts — such as a 401(k) — and thus, may be overweighted in investments that will be taxed in retirement. SECURE Act 2.0 introduces strategies that make Roth contributions — which are not taxed in retirement when all conditions have been met — a more accessible and attractive option for investors.
What investors should consider: Further guidance from the Treasury Department is still needed to implement Roth matching or profit sharing and contributions to SEP and SIMPLE IRAs.
If you are saving for — or paying off — education costs ...
5. Contemplate investing in a loved one’s education and retirement with a 529 gift
What SECURE Act 2.0 changed: 529 plan owners can now transfer funds from a 529 plan that’s at least 15 years old to a Roth IRA account in the beneficiary’s name. With this change, if your loved one doesn’t use the full amount of their 529 savings on qualified educational expenses, the remaining funds (up to a maximum of $35,000) can help jumpstart their retirement savings.
Opportunity to explore: Parents and grandparents can feel more confident about opening and funding a 529 account. If you are saving for a loved one’s education, you may want to consider if you’d like to increase your 529 plan contributions — or open an account — considering this new strategy established by the SECURE Act 2.0 changes.
What investors should consider: The amount of assets moved to the Roth is subject to the Roth IRA contribution limits and the Roth IRA owner must have earned income.
Learn more: How new 529 plan rules can help with retirement planning
6. Check if your employer will offer a student loan match benefit
What SECURE ACT 2.0 changed: Employers can now make matching contributions on various retirement plans for qualified student loan payments.
Opportunity to explore: If you are repaying student loans, check to see if your employer will begin to offer a match benefit.7 Consider reviewing your employee benefits every year with us to help take advantage of the benefits available through your employer.
What investors should consider: This change goes into effect in 2024 and will likely take some time for employers and plan administrators to implement this new benefit.
Make the most of SECURE Act 2.0
Whether you’re already in retirement, saving for retirement, or trying to balance your retirement goals with education costs, the SECURE Act 2.0 changes offer investors a unique opportunity. Connect us to learn how this new law can help you better meet your financial goals.