The Consolidated Appropriations Act of 2023 became law on December 23rd 2022. This legislation included what’s known as the SECURE Act 2.0 which contains various changes for retirement planning.
Below, we’ll lay out a summary of the changes and impacts we believe will be most applicable.
Required Minimum Distributions (RMDs) have been pushed back
If you have a birth year of 1951-1959, the new age to start RMDs is 73 instead of 72.
If you have a birth year of 1960 or later, the new age to start RMDs is 75 instead of 72.
If you have already started your RMDs (i.e. you turned 72 on or before Dec 31st 2022), nothing changes.
IMPACT: Allows slightly more time for tax deferral. Overall a net positive change.
Conditional 529-to-Roth IRA transfers
Effective 2024 and beyond
The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan
The 529 plan must have been maintained for 15 years or longer
Any contributions to the 529 plan within the last 5 years (and the earnings on those contributions) are ineligible to be moved to a Roth IRA
The maximum amount that can be moved from a 529 plan to a Roth IRA is $35,000 per beneficiary.
IMPACT: The conditions pose limitations, but the important theme is that Congress is opening the door for more flexible usage of 529 funds (and preservation of their tax benefits) outside of just education. Overall a net positive change.
Surviving-Spouse Beneficiaries of Retirement Accounts
Effective 2024, an option will exist to elect to be treated as the deceased spouse
IMPACT: Will benefit surviving spouses who inherit retirement accounts from a younger spouse. The surviving spouse can effectively delay RMDs using the younger, deceased spouses age and defer taxes for longer, in some cases significantly so. Overall a net positive change.
Age 50+ Catch-up Contributions for IRAs indexed to inflation
Age 50+ catch-ups indexed to inflation in $100 increments. Prior to this, the catch-ups were a flat $1,000
The main IRA contribution limit (non catch-up) has been and remains indexed for inflation
Reminder of IRA contribution limits for year 2023
Main Contribution - $6,500
Catch-up (age 50+) - $1,000
IMPACT: Will allow for more catch-up IRA contributions, but be prepared for slight upward adjustments on a potentially annual basis. Overall a net positive change.
Increased SIMPLE and Employer Plan catch-up contributions for participants in their early 60s
Only applies to those aged 60, 61, 62 or 63
SIMPLE Plans – allows for 150% of the typical 2025 catch-up amount (which is not yet determined because it is indexed for inflation)
Employer Plans like 401(k) and 403(b) - allows for 150% of the typical 2024 catch-up amount (which is not yet determined because it is indexed for inflation)
If this were effective today, it would change the current 2023 catch-up of $7,500 into $11,250.
IMPACT: Will allow for more catch-up contributions for Employer Plans during prime earning years. Overall a net positive change.
The SECURE 2.0 Act contained many other changes that apply to very specific situations beyond most of your circumstances.
We hope you find this summary interesting and insightful.
If you have any questions about this legislation and how it affects your personal situation, please let us know, we are available to go over this in detail with you.
As always, feel free to pass this on to others or let us know if you have any questions.