I was told that the SECURE 2.0 Act was created to make it easier for Americans to save more money for retirement. I suppose it does just that. But with that “ease” comes a batch of new thresholds, deadlines, and limitations; as with all changes to tax law, nothing is attained easily. Read on for a quick summary of the changes that will impact many of our clients (there’s much more in the law than this).
If you’re turning 72 at some point between 2023 - 2032, you get to push off your RMD to age 73. You can leave those investments alone for another year, which could be a benefit for you.
The changes in this area of the law are too confusing to include here in a quick summary. If you have questions or want to know more about this, let me know and we can discuss it privately over email. There are some odd adjustments to the timeline for catch-ups as you get close to 60 years of age. Let me know if you want to know more, or check with your investment advisor to learn more.
529 to Roth Rollovers:
This is a huge change. For those of you who have 529 plans for your kids, you know that the current rules impose a steep penalty for using the 529 funds for anything other than education expenses. But what if your kid gets a full or partial scholarship? What then?
o You can now roll over 529 funds to Roth IRAs
o The 529 must be maintained for at least 15 years before the rollover
o Rollovers are limited to the aggregate contributions and attributable earnings made at least 5 years before the date of the distribution (any contributions made within the last 5 years are not eligible for rollover, in other words)
o Rollover is limited to $6k contribution limit annually (will be indexed for inflation), and the lifetime rollover is limited to $35,000
o Effective 2024
There is a lot we don’t know about this change. For instance, can you change beneficiaries before you make the rollover? So, stay tuned for more on this. Our clients’ kids are now attending college and I guarantee this issue will come up for some of you.
SIMPLE & SEP Roth IRAs
Many of our small business clients offer Simple IRA options to their employees; some of the very small companies utilize SEP IRAs as well. In the past, you were not allowed to contribute to a Roth within a Simple or SEP. Now, effective in 2023, you can choose a Roth option in your Simple or SEP. This could be worth investigating since those Roth funds grow tax-free and are tax-free at withdrawal (there is no deduction for deferring into the Roth, however).
Those are just a few of the highlights. There is a lot more in this plan, but these are the primary points that could impact most of our clients.
This post is NOT intended to serve as investment advice in any way. Please consult with your financial advisor if you have specific questions about your circumstances, and we are always happy to weigh in if you wish.