Heads Up: SECURE Act 2.0 and Why It Matters for Those Approaching Retirement

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President Biden signed the SECURE Act 2.0 of 2022 on December 29, 2022. The SECURE Act 2.0 is a follow-up to the original Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.

The SECURE Act of 2019 was a tremendous help for seniors—allowing them to keep their tax-free retirement savings accounts longer. But some legislators believed that wasn’t enough, so they began working on other legislation to support retirees in their goal to save more and hold on to their hard-earned money longer. This resulted in SECURE Act 2.0.

Here is an overview of the key changes that are scheduled to come into effect mostly in 2024 or later.

Key Points

Age Requirements for RMDs

According to an article from CPA Practice Advisor, the age at which you must start taking Required Minimum Distributions (RMDs) has changed. Here is the new timeline:

• If you were born before 1950, your Required Minimum Distribution (RMD) must begin at age 72 (or 70 1/2 if that’s when you turned that age before 2020).
• If you were born between 1951-1959, your Required Minimum Distribution (RMD) must start at age 73.
• If you were born before or after 1960, you must begin taking your Required Minimum Distribution (RMD) at age 75.

Take note that if you were due to start your RMDs in 2023, you will now get an extra year and begin in 2024. In addition, Qualified charitable distributions (donations made directly from your IRA) can still be made from age 70 and a half.

Catch Up Contributions

From 2024, any catch-up contributions you make to your employer retirement savings account will be classified as Roth contributions if you earned over $145,000 in the previous year. This means they are not pre-tax deductions on your income.

Here’s some good news! Roth contributions grow tax-free, and thanks to the SECURE Act 2.0, Roth contributions inside an employer retirement savings account no longer have an RMD requirement.

Next Steps

Roth Catch-up Contributions

If you’re earning more than $145,000 each year in income, then it’s important to check with your employer and make sure their retirement plan offers the Roth catch-up option. If not, you won’t be able to take advantage of additional catch-up contributions. Not all plans have the Roth option right now, but there’s still time to get things sorted out.

529 College Savings Plan

Starting 2024, you may be able to transfer unused 529 College Savings Plan dollars into a Roth IRA. While this might be a potential planning opportunity, there are various restrictions that must be taken into account.

• Roth IRAs receiving funds from a 529 must be in the name of the beneficiary of the 529 plan.
• The 529 plan must have been in effect for 15 years or longer.
• Any contributions made in the last five years and earnings on those contributions are not eligible to move to a Roth IRA.
• The annual limit on how much can be moved from 529 to Roth is the same as the Roth IRA contribution limit for that year ($6,500 for most in 2023). And no double dipping. You can’t fund a Roth IRA for $6,500 and do a 529 to Roth transfer in the same year.
• The lifetime maximum amount that can be moved from 529 to Roth is $35,000.
• Can’t make a Roth IRA contribution because your income is too high? It appears the 529 to Roth option is still available for you regardless of income level.

Inheriting Spouse’s IRA/Catch-up Contributions

Surviving Spouse Beneficiary Changes

The surviving spouse beneficiary changes are effective starting 2024. The SECURE Act 2.0 makes it possible for surviving spouses to be treated as the deceased account owner for RMD purposes starting in 2024. This is especially helpful if the surviving spouse is older than the deceased, as they can then delay taking Required Minimum Distributions (RMDs).

IRA Catch-up Contributions

People aged 50 and older will be allowed, under the catch-up contribution, to contribute an amount above the standard contribution limits. For the past 15 years, the catch-up contribution limit has been $1,000. In 2024, it will be adjusted for inflation, increasing in $100 increments.

In 2025, people aged 60, 61, 62, and 63 will have a higher catch-up contribution limit. The limit will become $10,000 or 150% whichever is greater, of the regular catch-up contribution amount.

Those aged 60 to 63 can contribute up to $11,250 if the catch-up change was in effect this year. This is based on the 2023 catch-up contribution limit of $7,500 and must be made in Roth dollars.

Work cited:
Chad, J. (2023). Here is Why SECURE Act 2.0 Matters for Those Retiring Soon. Retrieved 2023, from https://www.cpapracticeadvisor.com/2023/02/08/here-is-why-secure-act-2-0-matters-for/76635/.