The changes to the original SECURE Act that originated during the pandemic are here – all 350 pages of them. I know you’re busy and don’t have time to read through all that, so here are a few things you should be aware of:
Changes to RMDs
One of the major changes in the SECURE Act 2.0 is when investors can begin taking required minimum distributions. Forbes offers this explanation:
The beginning age for RMDs of owners of traditional IRAs is transitioning in stages from 70½ (in effect when the original SECURE Act was enacted at the end of 2019) to 75 for those born in 1960 or later.
Anyone who turned 72 in 2022 or earlier follows the old rules. Those who turned 72 in 2022 have to take their first RMD no later than April 1, 2023. If you were taking RMDs before 2022, continue taking RMDs on the schedule you had in place.
Those who turn 72 in 2023 through 2033 (born from 1951 to 1959) have 73 as their RMD starting age. They have to take the first RMD by April 1 of the year after they turn 73. It’s usually best to take that first RMD in the year you turn 73 instead of waiting until the following year.
Anyone born in 1960 or later has 75 as the RMD starting age. They will have to take their first RMDs by April 1 of the year after turning 75. But, again, in most cases, it will be better to take the first RMD in the year they turn 75.
This means that seniors can keep their money in tax-deferred retirement accounts longer which can potentially help their bottom line. Understanding how RMDs work is a big part of successful retirement spending and is something you might want to consult a financial professional about to avoid potential tax consequences.
Student Loan Payments
While you might be used to thinking about your 401(k) contributions and your company’s matching policies as a path toward retirement, the SECURE Act 2.0 gives you another option.
Beginning in 2024, the Secure 2.0 Act will allow employers to provide their employees with 401(k) contribution matches based on their workers’ student loan payments. In other words, student loan payments can be treated as elective deferrals or employee 401(k) contributions and therefore applicable to a company’s matching policies.
This is, of course, based on each company’s specific 401(k) program, but it’s worth discussing with the department that handles your company’s benefits. With “84% of American adults [saying] student loans are negatively impacting how much they can save for retirement,” this could be a big help.
(Fox Business, Secure 2.0 Act, 1-4-2023)
New Options for 529 plans
One of the most exciting changes to the SECURE Act 2.0 is the option to have your 529 plan rolled into a Roth IRA. “Aside from a great opportunity to extend tax-free growth for children or grandchildren, it also creates a theoretical possibility for the longest possible tax-free compounding period.”
Here are some things to keep in mind:
- The Roth IRA receiving the funds must be in the same name as the beneficiary of the 529 plan.
- The 529 plan must have been maintained for 15 years or longer.
- Transfers count toward cumulative contribution limits to Roth and Traditional IRA accounts.
- The beneficiary must have earned income at least equal to the amount transferred in a given year.
- Lifetime transfer limit of $35,000.
- Only qualified distributions are tax-free
(Forbes, New SECURE 2.0 Planning, 1-21-2023)
I know that these topics can be overwhelming to think about. However, it’s important to stay on top of these changes because many of them can be very beneficial to you now and into the future. Let’s talk about how you can take advantage of this new legislation!
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