What Executives Need To Know About SECURE 2.0
SECURE 2.0 makes some major changes to retirement savings plans for Executives. Congress wants to help Americans save more for retirement and leave the savings untaxed for longer. However, I can’t help but think that 4,000 pages of legislation ending with 2.0 only means that by the time some of you near retirement, Congress will probably pass SECURE 18.0. Either way, whatever stage of life you’re in, there is at least one change in the legislation that affects you.
We’ve highlighted a few of the changes below that Executives need to know about SECURE 2.0:
1. Roth Accounts
- Mandatory distributions from Roth 401(k)s eliminated in 2024. Before 2023, if you made a ROTH 401(k) contribution to your 401(k) plan, you were required to take RMDs (required minimum distributions), just like a traditional 401(k) plan.
- SIMPLE Roth IRA and SEP Roth IRA options are available from 2023. Employers can make matching contributions and non-elective contributions to the Roth plan. For SIMPLE Roth IRAs, it will take a little time for the custodians to brokers to put them in place. Previously SIMPLE IRA owners couldn’t get their money into a Roth account in the first two years, but SEP IRA owners could convert to a Roth if they wanted to.
- Employers can make deductible Roth employer contributions from 2023. The amounts deferred into the accounts will be taxable to the employees. Employees continue to benefit from tax-free growth.
- Roths are the only option for plan catch-up contributions from 2024 if you are over the age of 50 and prior-year wages are greater than $145,000
2. 529 Accounts
- 529 plans can be transferred to the beneficiary’s Roth IRA account from 2024. The account must have been maintained for more than 15 years before transfers are allowed, and the maximum lifetime transfer is $35,000. There is also an annual limit up to the IRA contribution for that year. Any contributions to the 529 account made in the last five years cannot be transferred to the Roth IRA account. You cannot transfer any contributions made in the last five years. Example: Alex is the beneficiary of a 529 account opened in 2001. His parents stopped contributing to the account before he started college in 2018. There is still a balance of $45,000 in the account. $6,000 can be transferred to a Roth IRA account for Alex over five years from 2024-2029, and $2,500 can be transferred in 2030. During 2024-2029, Alex cannot make any other IRA contributions and can make a $4,000 contribution in 2030.
(Assumptions: Annual IRA contribution limits continue to be $6,500)
3. Required Minimum Distributions (RMDs)
- If you turn 72 after December 2022 and 73 before December 2033, your RMDs start at 73.
- If you turn 74 after December 2033, your RMDs start at 75.
4. Qualified Charitable Distributions
- Beginning in 2024, the maximum QCD amount will increase to $200,000
- There is a one-time ability to make a QCD of up to $50,000 to one of the following:
- Charitable Remainder Trust (CRUT)
- Charitable Annuity Trust (CRAT)
- Charitable Gift Annuities
5. Penalties on Retirement Accounts
- A first responder can take money from your retirement plan after the age of 50 without a penalty of 10%
- The penalty on the RMD not withdrawn has been reduced from 50% to 25%. The provision also allows you to correct this within a window and pay a penalty of 10%.
In our financial planning analysis, we constantly take legislation changes into our analysis and do the heavy lifting to understand how this impacts you. As always, please consult your financial advisor or tax advisor if you have further questions.
Additional resources:
https://www.asppa-net.org/news/key-secure-20-act-provisions-and-effective-dates
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