Brandon Baiamonte, MS, CPA, CFE, CFM, CFA® is Mission Wealth's Director of Tax Strategy. He works to effectively build out and lead the tax department in identifying and developing tax solutions that benefit our client base throughout the country. Brandon loves to both learn and help others. His position gives him the ability to research tax strategies and then work with client advisors and their clients to implement those strategies.
What is The SECURE ACT 2.0?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 was signed into law by President Donald Trump on December 20, 2019, as part of the Further Consolidated Appropriations Act, 2020. The SECURE Act is the first major retirement-related legislation enacted since the 2006 Pension Protection Act.
SECURE Act 2.0 was signed into law by President Biden on December 29, 2022. This Act is aimed to improve the retirement savings system and has well over 100 provisions. We’ll briefly summarize the most important provisions below.
The Required Minimum Distribution (RMD) Age is Now 73
- The most important thing to know is the RMD age will be 73 starting in 2023 and will then extend out even further to age 75 starting in 2033. It’s important to note that RMD’s will be unchanged for those who turned age 72 prior to 2023.
- The penalty for missed RMDs is being reduced from 50% to 25% starting this year (2023). The penalty can also be reduced to 10% in some cases, including self-correction.
- There is currently no RMD for Roth IRAs during the account holder’s life; however, there is an RMD requirement for Roth 401(k)’s. Starting in 2024, there will no longer be this requirement on Roth 401(k)’s.
Increased Retirement Options for Business Owners
- There is now the option to have Roth SEP (Self-Employed Person) or SIMPLE accounts. Although this is effective in 2023, it may take custodians some time to update their plans to allow for this.
- Sole proprietors can now open a new 401(k) plan and make salary deferrals for the prior year up until the filing deadline (not including extensions).
Additional Employer Contributions to Matching and Non-Elective Contributions
- Additional employer contributions can now be made to Roth accounts. It’s important to note this only applies to matching and non-elective contributions. Profit-sharing contributions DO NOT qualify. It appears the employer will still get the tax deduction, but the employee would need to pay taxes on these employer contributions. It also appears these contributions need to be “non-forfeitable” which gives rise to questions regarding contributions made on a vesting schedule. We’ll need to wait for guidance from the IRS on how this will be enforced.
- Starting in 2024, employers can make matching contributions to an employer retirement plan based on participants’ student loan payments made during the year.
Additional Catch-Up Contributions
- Starting in 2025, those individuals between the ages of 60 and 63 will be able to make a $10,000 catch-up contribution. This amount will also be indexed for inflation.
- In 2024, catch-up contributions for those age 50 or older will need to be made in a Roth account if you earn more than $145,000. If you earn less than that amount, then you don’t need to follow this requirement.
- IRA catch-up contributions will start being indexed for inflation beginning in 2024.
Direct Transfers from 529 Plans to Roth IRAs
- Direct transfers from 529 plans to Roth IRAs will be allowed starting in 2024. There are several rules that need to be followed. Rollovers won’t be allowed; it must be a direct transfer. The Roth IRA must be in the name of the beneficiary of the 529 plan. The 529 plan must have been maintained for at least 15 years. The maximum lifetime transfer is $35,000 and is subject to annual IRA contributions limits. In other words, you won’t be able to transfer the whole amount over in one year.
- The IRS will eventually create regulations on how this law will be interpreted. There are currently open questions on whether you can change the beneficiary without resetting the 15-year clock. If so, then you might be able to fund Roth IRA accounts for multiple family members (or possibly even for you or your spouse) each year. There may also be planning opportunities for opening and funding 529 accounts with a minimal contribution as early as possible to get the 15-year clock moving.
Surviving Spouse RMD Benefits
- Starting in 2024, there is an election for the surviving spouse to be treated as the decedent for RMD purposes. This may help surviving spouses that are older than the decedent spouse. You will also be able to use the uniform lifetime table that will produce reduced RMDs.
Qualified Charitable Distributions (QCD)
- Qualified charitable distributions (QCD) will start being indexed for inflation starting in 2024. Starting this year, Congress also created a one-time maximum $50,000 QCD distribution to a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT), or a charitable gift annuity (CGA). I was excited about this at first until I read the fine print. The trust (split-interest entity) can ONLY be funded by the QCD amounts. In other words, you can’t make separate contributions from non-QCDs such as taxable accounts. Once you take the administrative costs into consideration (such as drafting the documents and preparing the annual tax return), it doesn’t make a lot of sense to fund this type of entity with a contribution limit of $50,000. Talk with your Client Advisor to determine if this may be a benefit for your situation.
Additional Rollover and Emergency Savings Provisions
- There is a provision that eases the burdensome requirements for substantially equal periodic payments under 72(t). Starting in 2024, partial rollovers or transfers won’t create a “modification” to the plan if the total payments still equal the correct 72(t) amount.
- There will be an emergency savings account component linked to employer plans such as 401(k) plans. This account starts in 2024 and highly compensated employees will be ineligible to participate. Eligible participants can be automatically enrolled to contribute up to 3% of compensation. Account balances can’t exceed $2,500 of contributions.
Mission Wealth Can Help You Retire With Confidence
This may be your first time retiring, but it's not ours. Careful coordination is required to ensure your retirement income strategy is tax-efficient and sustainable. You will face many decisions when retiring. Let us guide you through your options and come up with a plan.
Mission Wealth’s vision is to provide caring advice that empowers families to achieve their life dreams. Our founders were pioneers in the industry when they embraced the client-first principles of objective advice, comprehensive financial planning, coordination with other professional advisors, and proactive service. We are fiduciaries, and our holistic planning process provides clarity and confidence. For more information on Mission Wealth, please visit missionwealth.com.
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