Secure Act 2.0: What does this mean for retirement savings?

By Christine Robinette, Executive Vice President, Fragasso Financial Advisors

Photography provided by: Fragasso Financial Advisors

On December 23rd of 2022 Congress, with bi-partisan support, passed the Secure Act 2.0. and President Biden signed it into law on December 29, 2022. This act builds onto the Secure Act of 2019 to continue to expand and incentivize retirement planning. Secure Act 2.0 does not include anything as drastic as “the death of the stretch IRA” for most non spouse beneficiaries, but it is still a mammoth bill. In fact, there are close to 100 changes included in this bill. While we will not review every rule change in this blog, we will review the most impactful to individual investors. This blog will be followed by a more in-depth dive into the company retirement plan changes included in the Secure Act 2.0.

1. Before 2020 the RMD age began at 70 ½. Once the initial Secure Act passed, the RMD age was increased to age 72. Now three years later, the RMD age increases again. This time there are two different required minimum distribution start dates depending on when you are born.

Please see the chart below:

2. This act also decreases the penalty for a missed RMD from 50% of the distribution amount down to 25%. The penalty can go as low as 10% if the individual takes the missed RMD and files a corrected tax return in a timely manner.

3. Starting in the year 2024, you will no longer be required to take an RMD from an employer Roth account. This change is to align with the rules for individual Roth IRA’s as you are not required to take RMD’s. Also starting in 2024, if you had started taking required distributions from an employer Roth account you can stop taking them.

Catch-Up Provisions

1. Starting in 2024, IRA catch-up provisions of $1,000 for people 50 and older will be indexed for inflation.

2. Also in 2024, an individual who makes more than $145,000 in wages or more cannot make pretax catch-up contributions to employer retirement plans. They must go into the plan’s Roth component. If the plan does not have a Roth component, catch-up provisions are prohibited for everyone in the plan, no matter what they earn.

3. Effective in 2025, participants of employer plans from the age of 60-63 can save an additional $10,000 per year or 150% of the regular catch-up amount. The catch-up amount for employees ages 60-63 in a Simple Plan will increase to $5,000 or 150% of the regular catch-up amount.

Other Noteworthy Changes

1. Starting in 2023, a Roth Simple or SEP IRA is available.

2. As of 2023, employer contributions can now go into the Roth component of the plan. Keep in mind that these amounts will be included in the employees’ adjustable gross income.

3. This year you can now move 72T SEPP (Substantially Equal Periodic Payments) accounts to a new account as long as the original 72T SEPP distribution is taken.

4. In 2024, the Qualified Charitable Distribution will be indexed to inflation. You will also be able to make a separate onetime donation of $50,000 to a CRUT, CRAT or CGA. This cannot be combined with other split interest money, and you can only combine each spouse $50,000 donations.

529 to Roth IRA Transfers

Beginning in 2024, 529 plans are eligible to be rolled over directly into a Roth IRA, but there are several stipulations.

a. The maximum lifetime transfer per beneficiary is $35,000 but you can only transfer the annual Roth IRA contribution amount per year until it hits $35,000.

b. The 529 must have been in existence for fifteen years or more.

c. The beneficiary must have earned income.

d. You can change beneficiaries on the 529 plan, including to yourself, as a rollover must be like name to like name.

5. There is a change in post death options for a surviving spouse starting in 2024. The surviving spouse may elect to be treated as the decedent for RMD purposes. Where this can be beneficial is when the deceased spouse is younger. The RMD remains on the uniform RMD table not the single life table. If the surviving spouse dies before RMDs begin, their beneficiaries will be treated as the original beneficiaries.

As you can see there are a vast number of changes in the Secure Act 2.0. It can seem daunting to digest so many changes and what year they become effective. Your financial advisor can guide you in understanding which changes pertain to you. Additionally, your financial advisor can help identify opportunities for planning strategies that could prove valuable now and in the future. If you would like to learn more about how Fragasso Financial Advisors can help you with these changes, visit www. fragassoadvisors.com or email me at crobinette@fragassoadvisors.com.

Investment advice offered by investment advisor representatives through Fragasso Financial Advisors, a registered investment advisor.