Three years after the SECURE Act was enacted, SECURE Act 2.0. passed at the end of last year. Here are some of the highlights and opportunities.
RMDs and QCDs
If your 72nd birthday happens to occur in 2023, lucky you! You benefit from the required minimum distribution (RMD) age being raised from 72 to 73. Though not a big change, this does encompass individuals born in the years 1951 - 1959. If you were born in 1960 or later, your RMD age is now 75. There is currently no 74 RMD age. It's either 73, 75, or if you were already taking your RMDs, keep doing what you're doing.
If you've been making or have been looking forward to making qualified charitable distributions (QCDs) from your IRA before you have to take RMDs, you're still able to start this up at age 70 1/2.
All the Tax-Free (Roth) Stuff
There was no change to backdoor Roth contributions. If this strategy was smart for you before, you can continue with it.
Do you have Roth money in an employer plan? You can now keep it there after age 72 without having to take RMDs.
We've seen the growing popularity of the Roth 401k. Though not required, employers are now able to contribute to the Roth portion of an employee's retirement plan. You may start to see other Roth employer plan options pop up as SEP and SIMPLE IRAs now have this capability. These items may take some time as employers and administrators navigate these changes.
Individuals with wages over $145,000 (earned in the prior year at the same employer) will only be able to make a catch-up contribution to their 401k, 403b, or 457b as a Roth contribution. Pre-tax (traditional) catch-up contributions for the $145K+ group will no longer be permitted. This takes effect in 2024.
Overfunded 529?
Starting in 2024, funds in a 529 can be transferred to a Roth IRA in the name of the 529 plan's beneficiary if the 529 was maintained for 15+ years with the exception of contributions (and earnings) made over the last 5 years. The annual transfer that can be done is the same as that individual's own IRA contribution limit. For example, if the beneficiary has already maxed out an IRA or Roth IRA for the year, this transfer cannot be completed in the same year. There is also a maximum lifetime transfer of $35,000 to an individual. While it seems like a bunch of hoops to jump through, this could turn into a jumpstart for the beneficiary's retirement savings without that pesky 10% penalty.
Concluding Thoughts
We are still in the early days of the 2.0 rollout and will likely see additional guidance and clarification. What we've mentioned here are just some of the most key changes. For more details, we recommend reviewing Jeffrey Levine's in-depth article on Kitces.com.
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