Secure Act 2.0 – Provisions That Could Impact FAS Clients

On December 23, 2022, Congress passed the Consolidated Appropriations Act of 2023 that included what is commonly referred to as Secure Act 2.0.  This much-anticipated bill is a follow-up to the Secure Act passed in 2019 and has far-reaching impact to retirement plans and planning for individuals.  We wanted to summarize some of the most important changes made that could impact our clients.

• Changes made to Required Minimum Distributions Provisions:

  • Age at which you are required to take distributions from IRAs (RMD Age) changes from 72 to age 73 for those born between 1951 and 1959. For those born 1960 or later, the first year to take RMDs is age 75.
  • Tax Penalties for missed RMD reduced from 50% to 25%. If the missed RMD is corrected within a “correction window”, the penalty is further reduced to 10%.

• Changes related to Roth accounts:

  • Beginning in 2023, Roth SIMPLE IRAs and Roth SEP IRAs are allowed, putting them more on par with other employer-sponsored plans.
  • Beginning in 2024, Required Minimum Distributions from Roth accounts within employer sponsored plans (401(k)s, 403(b)s, etc.) are eliminated.
  • Employers are now allowed to make Roth-matching contributions if they choose to do so.
  • Post-age 50 catch-up contributions by high wage-earners (over $145,000 in wages) are required to make the catch-up contributions through Roth option.

• Qualified Charitable Distributions (QCDs) adjustments:

  • QCDs from an IRA have been limited to $100,000 annually. Beginning in 2024, the annual limit will be indexed to inflation.
  • Additionally, you can make a one-time split-interest gift for estate planning purposes to a CRAT, CRUT, CGA (Charitable Gift Annuity) although there are significant restrictions applied to these provisions that limit the benefit for income and estate tax planning purposes.

• 529-to-Roth IRA transfers:

  • Dollars previously earmarked for education expenses through a 529 savings plan now can be repurposed to a Roth IRA under limited circumstances. The following conditions must apply:
    • 529 plan must have been active for at least 15 years
    • The Roth IRA must be in the name of the beneficiary of the 529 plan
    • The lifetime maximum amount that can be moved from 529 plan to Roth is $35,000
    • Annual limit for amount that can be moved/transferred from 529 plan to Roth IRA is the annual Roth contribution limit, less any other regular or Roth IRA contributions made in that year

• Changes to Catch-Up contribution provisions:

  • Beginning in 2024, IRA catch-up contributions will be $1,200 and indexed to inflation going forward.
  • Effective in 2025, those ages 60 – 63 are allowed to make $10,000 catch-up contributions (or 150% of current catch-up amount) to their employer plans (401(k)s, 403(b)s, etc.). SIMPLE IRA participants of the same age see their contribution limits increase to $5,000 or 150% of current catch-up amount.

• Other Relevant Changes:

  • Surviving Spouse may choose to treat a retirement account as deceased spouse for required minimum distribution purposes which can be beneficial if deceased spouse is younger than surviving spouse.
  • Beginning in 2023, Solo 401(k)s can be established and retroactive contributions can be made for the prior year’s income. This creates a level playing field for how SEP IRAs can be funded up to the tax filing deadline.
  • Many new provisions allow access to retirement funds early and free of penalty as a result of hardship, emergency, or public safety employment.

Additionally, there are notable topics omitted from the bill including:

• Updates or clarification around the new 10-Year Rule for distributions from inherited IRAs created under the original Secure Act
• No changes or limits made that impact the so-called “back-door Roth” or “mega-back door Roth” strategies
• No changes made to Roth Conversion rules

These are what we see as the most relevant changes impacting individuals.  Additionally, there are substantial changes made for employers and retirement plan providers meant to encourage the establishment of retirement plans for employees and to encourage savings.

Retirement planning and distribution rules continue to be a complex landscape made only more complex with the expansion of provision under the Secure Act 2.0.  Each family’s situation is different and requires thoughtful analysis when determining whether or not to take advantage of any current or new provisions.  We encourage you to reach out to your FAS advisor with any questions you have on the provisions in the Secure Act and discuss any impact it may have on your plan.

Investment Advisory Services offered through FAS Wealth Partners, Inc., a Registered Investment Advisor with the U.S. Securities & Exchange Commission. Registration does not imply a certain level of skill or training.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. This communication offers commentary and generalized research, not personalized investment advice. Securities may be offered through FAS Corp, an SEC registered broker-dealer and member of FINRA.  FAS Corp is an affiliate of FAS Wealth Partners.