Changes Under Secure Act 2.0

The Secure Act 2.0 was signed into law in late December 2022. While the legislation contains a number of provisions, this alert focuses on the changes most relevant to individuals in their personal planning.

• Increased Age at Which You Must Take Required Minimum Distributions (RMDs) from Individual Retirement Accounts (IRAs) and 401(k)s. For people in or near retirement, the age at which you must start taking RMDs increased to 73 on January 1, 2023. The previous age to begin taking RMDs was 72, so you may have an additional year to delay taking a mandatory withdrawal of deferred savings from your retirement accounts.
  • If you turned 72 in 2022 or earlier, you will need to continue taking RMDs as scheduled.
  • If you're turning 72 in 2023 and have already scheduled your withdrawal, you may want to consider updating your withdrawal plan.
  • SECURE 2.0 also pushes the age at which RMDs must start to 75 starting in 2033.
  • Deferring RMDs allows for more growth within the account protected from income taxes and may delay distributions into years with less taxable income.
• Changes to the Qualified Charitable Distribution (QCD) Rules.
  • A QCD is a direct transfer of funds from your IRA, payable directly to charity. Amounts distributed as a QCD can be counted toward satisfying your RMD for the year, up to $100,000. This amount will now be indexed for inflation. The QCD is excluded from your taxable income, unlike with a regular withdrawal from an IRA, even if you use the money to make a charitable contribution later on. If you take a withdrawal, the funds would be counted as taxable income even if you later offset that income with charitable contributions. This could affect your tax brackets and phase out other benefits.
  • Beginning in 2023, if you are age 70½ or older, you may elect as part of your QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. This is an expansion of the type of charities that can receive a QCD. This amount counts toward the annual RMD. Note that for gifts to count, they must come directly from your IRA by the end of the calendar year. Most likely this will be used to create charitable gift annuities since charitable remainder trusts may be too complicated to create and administer with that amount of assets.
• Increased Catch-Up Contributions. If you are still in your working years, the rules for catch-up contributions have changed. These are the additional contributions older workers can make to their retirement accounts.
  • Beginning in 2025, retirement plan participants aged 60 through 63 can make catch-up contributions equal to the greater of $10,000 (indexed for inflation) or 150% of the regular catch-up limit.
  • The law has changed such that all catch-up contributions will need to be made on an after-tax basis, unless you have wages of less than $145,000. If you earn $145,000 or more, you will only be able to fund the catch-up contributions with post-income tax dollars. Traditional 401(k) contributions are made with pre-tax dollars.
• Other New and Ongoing Planning Opportunities.
  • Many of our clients have funded 529 college savings plans. There are now planning opportunities to transfer unused balances to Roth IRAs. The rules are complicated so you should consult us or your other advisors. But this could be a helpful way to guide children, grandchildren, or other family members into retirement savings.
  • It continues to be worth considering naming one or more charitable organizations as the beneficiaries of traditional IRAs or 401(k)s, since the charity will receive 100% of the balance, while children or other family members will have it depleted by income and estate taxes.
  • The “original” Secure Act ushered in many changes to the minimum distribution requirements that apply to retirement accounts in the hands of a beneficiary after the death of the plan participant. While these changes were generally taxpayer unfriendly and the rules have continued to evolve due to additional IRS guidance, the post-death planning opportunities are largely unchanged by the new legislation.

Planning for tax-efficiency with retirement accounts is a complex part of estate planning. Please let us know how we can help answer your questions and coordinate with your other advisors to take advantage of the changing rules.