Secure Act 2.0….WOW!

Jan 5, 2023 | Weekly Wrap-Up

On December 23, 2022, the US House of Representatives finally passed the Consolidated Appropriations Act of 2023 – a spending bill authorizing roughly $1.7 trillion in new Federal Spending.  Included in the 4000+ page document was the retirement bill known as SECURE Act 2.0.  There is A LOT to digest, so we have provided just some of the Act’s highlights here:

  • Required Minimum Distribution age change:  The updated act pushes out the required minimum (RMD) age.  Originally set at 70 ½ in the Tax Reform Act of 1986, then moved to age 72 with SECURE Act 2019, the newest version now pushes the age as follows:
    • If your birthdate is:
      • 1950 or earlier = RMD age is 72
      • 1951 – 1959 = RMD age is 73
      • 1960 or later = RMD age is 75!
  • Roth IRA related changes: There will be no more RMDs for Roth accounts in qualified employer plans (Roth 401ks/403bs/457bs).
    • Note – RMDs are not required from a Roth IRA currently or in the future
  • Creation of Simple Roth IRAs and SEP Roth IRAs – Taxpayers have 2 new opportunities for Roth contributions.
    • Note – Since this is hot off the press, employers, and custodians and even the IRS need time to develop and implement procedures and policies for these new account types.  It will be some time before you can establish and fund these new accounts.
  • Matching employer contributions can now be directed to Roth accounts in your 401k/403b/457b account
    • Previously all employer contributions were directed to the pre-tax account even if your contributions were going to the Roth 401k/403b/457b account
  • Catch up contributions for high wage earners will go into a Roth vs. Pre-tax retirement plan:
    • Individuals who earn W2 wages (i.e., not self-employed individuals) who earn more than $145k will have their contributions of income above $145k to be considered Roth or POST-tax contributions, not pre-tax contributions.
    • While it’s great to get access to the Roth, some high earners would rather their contributions be pre-tax to lower their tax liability.  This will no longer be an option for catch up contributions only.

And we saved the best for last!

  • 529 to Roth IRA transfers will be allowed after 15 years: If a 529 has been maintained for 15 yrs. or longer, you can transfer that year’s IRA maximum contribution FROM the 529 TO a Roth IRA in the name of the 529 beneficiary. *That will count as your IRA contribution for the year, and you will not be able to ALSO contribute directly to a traditional or Roth IRA.
    • Note: Any contributions made in the last 5 yrs. are ineligible to be transferred to a Roth IRA.  The maximum lifetime 529-to-Roth transfer cap is $35k.
    • You can change the beneficiary to yourself and transfer unused 529 contributions to yourself!