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SECURE Act 2.0: Here’s What It Means for You

Near the end of 2022, the much-anticipated SECURE 2.0 Act was signed into law. This law builds upon the original SECURE Act that was passed in 2019, and again impacts retirement savings for taxpayers. Here are some of the changes you should be aware of.

Required Minimum Distribution (RMD) Age Increases

In the original SECURE Act, you needed to start taking RMDs from your retirement accounts the year that you turned 72, but that changes in Act 2.0. Beginning in 2023, the age to begin taking RMDs increases from 72 to 73 - which means that if you turn 72 this year, you can delay taking your first RMD until 2024 and give your savings more time to grow. Additionally, there is a second provision which states that in 2033, the RMD requirement age will jump from 73 to 75. 

And while you’ll still face a penalty tax if you fail to take an RMD, that tax has been lessened from 50% to 25%. 

Roth 401(k) RMD Elimination

Currently, if you have a Roth 401(k), you are required to take an RMD; the same action is not necessary if you have a Roth IRA. SECURE 2.0 eliminates the Roth 401(k) RMD, so you would not need to first rollover your 401(k) funds to an IRA. This change will take effect in 2024.

Changes to Catch-Up Contributions 

Under current law, taxpayers aged 50 and above are allowed a catch-up contribution of $1000 to their IRA. While the base amount you’re allowed to contribute to an IRA is adjusted annually due to inflation, typically, the catch-up amount is not. Secure 2.0 changes this, so now the catch-up contribution will also reflect inflation.

For Employer Sponsored Plans 

Catch-up contribution limits overall are increasing for people aged 60-63 beginning in 2025. At that time, taxpayers aged 60, 61, 62, or 63 will be able to contribute the greater of $10,000 or 50% more of their regular catch-up contribution. After 2025, the increased amount will also be adjusted for inflation.

Qualified Charitable Distribution Limit Increase

Qualified Charitable Distribution (QCD) had a limit of $100,000 for taxpayers, starting at age 70 ½. While the age limit does not change and you can still apply QCDs toward your RMD for the year, the limit will be indexed for inflation. Additionally, taxpayers are now allowed to make a one-time QCD payment to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts beginning in 2023 (lifetime max amount of $50,000 per IRA owner).

529 Plan Changes

529 Plans are a great way to help fund educational endeavors for children or grandchildren. SECURE 2.0 implements a few changes to these plans, in order to avoid possible tax penalties if you no longer need to fund education for a designated beneficiary.

If the 529 plan has been open for more than 15 years, the beneficiary of that account would be allowed to rollover $35,000 during their lifetime to a Roth IRA in a tax-free transfer. However, unlike an IRA to Roth conversion, you cannot transfer all funds at once - you are still required to adhere to Roth IRA contribution limits, which vary depending on your age. This change takes effect in 2024.

Want to know more about the SECURE 2.0 Act and how its changes will affect your retirement?

The SECURE 2.0 Act implements massive retirement changes that could affect your retirement plans beginning as soon as this year, so it’s important to stay up to date and know what your options are. We understand that legislation changes might cause you to have concerns or questions, and we are here to help.

Contact us today to discuss how SECURE 2.0 Act retirement changes can best be used for your retirement, tax, and wealth planning.


The Team at Chatterton & Associates

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc nor its representatives provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.

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