Written by: Rishi Ghosh, Founder & Principal
The first version of the SECURE Act, which passed in December 2019 had two main walkaways for retirees:
- It pushed Required Minimum Distribution (RMD) age back from 70.5 to 72 and
- It eliminated the “stretch IRA” for beneficiaries, now requiring Inherited IRAs to be liquidated within 10 years of the original IRA owner’s death.
On Thursday, December 29th, 2022, President Biden signed and passed SECURE Act 2.0. There’s a lot in the SECURE Act 2.0, covering everything from required minimum distributions to 529 rollovers. Regardless of your investment goals, there’s something in this document that will affect your tax-advantaged investing accounts. Masked within a 1.7 trillion-dollar spending bill, SECURE Act 2.0 had four big takeaways for our clients nearing and in retirement:
- Changes to RMD age
Starting January 1, 2023, the age at which owners of retirement accounts must start taking RMDs increased to 73. Two important things to think about: If you turned 72 in 2022 or earlier, you will need to continue taking RMDs as scheduled. SECURE Act 2.0 will also push the age at which RMDs must start to 75 beginning in 2033.
- Higher Catch-up Contributions
Starting January 1, 2025, individuals ages 60 through 63 years old will be able to make catch-up contributions up to $10,000 annually to a workplace plan, and that amount will be indexed to inflation. The catch-up amount for people aged 50 and older in 2023 is currently $7,500.
- Matching for ROTH accounts
Employers will be able to provide employees the option of receiving vested matching contributions to Roth accounts. Previously, matching funds in employer-sponsored plans were made on a pre-tax basis. This Roth contribution from employers is not mandatory but has now been made an option to employers and their qualified plans.
- Qualified Charitable Distributions (QCDs)
Beginning in 2023, people who are age 70½ and older may elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity.
One piece of the Secure Act that I did find quite interesting has to do with 529 plan rollovers. Starting in 2024, you can now roll over money in a 529 plan directly into the beneficiary’s ROTH IRA. The 529 must have been open for 15 years and the maximum lifetime rollover amount is $35,000. This helps our clients who add money for grandchildren to feel comfortable knowing that even if the funds aren’t needed, they can now be used penalty free to grow tax-free in a ROTH IRA.
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