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How You Might Benefit from SECURE 2.0 Act


SECURE 2.0 Act, which was signed into law December 29, 2022, aims to help Americans save enough for a secure retirement. With almost 100 changes, the legislation is nuanced and complex, so let’s take a look at some areas most likely to help clients with $2 – $30 million in investable assets.

Increased catch-up contributions

Starting the year you turn 50, you’re eligible to make higher contributions to your IRAs and employer-sponsored retirement plans. Taking advantage of these catch-up contributions can help reduce any shortfall in your retirement savings. 

SECURE 2.0 includes several changes to catch-up contributions over the coming years, affecting various types of retirement accounts. Traditional and Roth IRAs currently allow those who are 50+ to make a $1,000 catch-up contribution each year. Starting in 2024, SECURE 2.0 requires this amount to adjust for inflation.

For 401(k)s and other qualified employer-sponsored plans, workers that are 50+ can make a $7,500 catch-up contribution for 2023, which is in addition to the $22,500 annual limit. Starting in 2025, workers who are 60 to 63 can make a special catch-up contribution of $10,000 or 150% of the 2025 standard catch-up contribution, whichever is greater. Another less-popular change takes effect in 2024 and requires workers that earned over $145,000 (in the previous year) to make any catch-up contributions into the employer’s Roth account — meaning, contributions must be made with after-tax money.

If you’re eligible to contribute to a SIMPLE IRA or 401(k), workers that are 50+ can make a $3,500 catch-up contribution for 2023, which is in addition to the $15,500 annual limit. Starting in 2025, workers who are 60 to 63 can make a special catch-up contribution of $5,000 or 150% of the 2025 standard catch-up contribution, whichever is greater.

Delayed required minimum distributions (RMDs)

Americans are living longer — and many choose to work well beyond the traditional retirement age of 65. To adjust to this trend, SECURE 2.0 gradually increases the age at which you’re required to start taking money out of certain retirement accounts, like Traditional IRAs and 401(k) plans. Starting in 2023, RMDs must begin by age 73, and this age increases to 75 in 2033. 

Delaying the RMD age benefits older Americans that want to work longer, provides retirees with more control over their retirement-income strategy, and allows for more years of tax-free growth. SECURE 2.0 also eliminates the RMD requirement altogether for Roth 401(k) accounts in 2024 and significantly reduces penalties for not taking an RMD. Note: RMD age changes do not apply to inherited IRAs.

Expanded qualified charitable distribution (QCD) options

Those 70½ or older currently can contribute up to $100,000 of an IRA to a QCD, which counts toward your annual RMD and is exempt from income tax. SECURE 2.0 requires the $100,000 QCD limit to be indexed for inflation. It also allows for a $50,000 one-time QCD from an IRA to a Charitable Gift Annuity, Charitable Remainder Unitrust, or Charitable Remainder Annuity Trust. As with other QCDs, the one-time $50,000 QCD applies to the client’s annual RMD.

New Roth IRA rollover option for unused 529 plan assets

Saving for a child’s education through a 529 plan offers significant tax benefits, as earnings can grow tax-deferred and qualified withdrawals are not taxed, but a potential drawback relates to unused assets. Predicting how much money a child might eventually need for education can be difficult. Or, what if the child decides not to attend college? These unknowns, coupled with strict rules regarding how 529 assets can be used, often cause people to limit their contributions, as they don’t want to “save too much” in a 529 plan.

SECURE 2.0 helps address this potential shortcoming by allowing investors to gradually roll over up to $35,000 in 529 plan assets into a Roth IRA, starting in 2024. To be eligible, the 529 plan must be open 15 or more years, the assets must be rolled into a Roth IRA for the 529 beneficiary, the rollover amount cannot exceed the annual Roth contribution limit ($6,500 for 2023) or the beneficiary’s earned income, and the rollover cannot include contributions or earnings from within the past five years.

We’re ready to help

While we’ve discussed how SECURE 2.0 will likely affect high-net-worth clients, it also includes many provisions to help bolster younger workers. Your advisor is uniquely equipped to explain how SECURE 2.0 might affect you or your loved ones, as well as any adjustments that might benefit your overall savings strategy.

The content is developed from sources believed to be providing accurate information. Potentia and Potentia Wealth do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.

Investment advice is offered through Strategic Wealth Advisors Group, LLC., a registered investment advisor. Strategic Wealth Advisors Group, LLC., Potentia, and Potentia Wealth are separate entities.

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