So, what's all this about the SECURE Act, Round Two?
Presumably, Congress felt like anything worth doing once was worth doing twice, because on
December 29, 2022, the President signed the SECURE 2.0 Act. The SECURE 2.0 Act made
quite a few enhancements to clarify the original legislation. Most of the changes this second go-
round affects you—the retirement account owner—rather than your beneficiaries. Several of the
key enhancements are:
- It raises the required beginning age for required minimum distributions (RMDs) from your individual retirement accounts to age 73 in 2023 and age 75 by 2033.
- It decreases penalties for not taking RMDs to 25% of the RMD amount (down from 50%) with an opportunity to further reduce the penalty to 10% if certain actions are taken in a timely manner to correct the oversight.
- It allows higher catch-up contributions for participants over 50 ($7,500 for both 2023 and 2024).
- Employees will be automatically enrolled in 401(k) and 403(b) plans but may opt out within 90 days.
- There is more flexibility in annuity payments paid from qualified retirement plans.
- Early distributions are permitted for long-term care contracts without penalty.
- Plan sponsors may match contributions made on student loan repayments on the same vesting schedule as elective deferrals, effective in 2024.
- 529 plans maintained for at least 15 years may be rolled over into a Roth IRA with a $35,000 lifetime limit, effective in 2024.
SECURE 2.0 also allows exceptions to the 10% early distribution excise tax for certain situations
and events, such as:
- Qualified births and adoption expenses
- Terminally ill individuals
- Federally declared disasters
- Emergency personal expenses
- Domestic abuse victims
Review Intended Beneficiaries
With the changes to the laws pertaining to retirement accounts, now is a great time to review and
confirm your retirement account information. Whichever estate planning strategy is appropriate
for you, it is important that your beneficiary designation be filled out correctly. If your intention
is for the retirement account to go into a trust for a beneficiary, the trust must be properly named
as the primary beneficiary. You should also ensure you have named contingent beneficiaries.
If you have recently divorced or married, you need to verify that the appropriate changes are made to your current beneficiary designations. At your death, in many cases, the plan administrator will distribute the account funds to the beneficiary listed, regardless of your relationship with the beneficiary or what your ultimate wishes might have been.
If you are charitably inclined, now may be the perfect time to review your planning and possibly
use your retirement account to fulfill your charitable desires. You may choose to distribute your
entire retirement asset directly to a charity, knowing the organization will not have to pay tax on
the income from the plan.
One More Consideration
Following the recent changes imposed by the SECURE Act highlighted at the beginning of this
article, you may be concerned about the amount of money that will be available to your
beneficiaries following your death and the impact that the potential accelerated income tax may
have on that ultimate amount. Perhaps now is the time to explore different strategies with your
financial and tax advisors to infuse your estate with additional cash upon your death (psst…life
insurance may be a great solution).
These two new laws are changing the way Americans think about retirement accounts and their use as a wealth-transfer vehicle. We are here and are prepared to help you properly plan for your family and protect your hard-earned retirement accounts. Give us a call today to schedule an appointment in the new year to discuss how your estate plan and retirement accounts might be impacted by the SECURE Act and SECURE 2.0 Act.
