As promised, here is a summary of the changes in the recently passed Secure (Setting Every Community Up for Retirement Enhancement) Act 2.0. This is not everything in the plan, and does not contain all the details and nuances, so if you have questions, please ask before taking any action. Also, there are some contradictions and unclear language in the bill, which will most likely need to be clarified prior to the effective dates of each clause. 

For all clients, if there is something that needs to be done, we will let you know and/or take the action for you, so please do not feel like you need to navigate this yourself. 

I tried my best to keep this high level. I also included my opinion on the overall pros, cons, and thoughts on the big provisions. 

Here we go......

RMD Related Changes

RMD (Required Minimum Distribution) Age Requirements: Only a few years ago, the age at which you must take RMDs from your pre-tax accounts was 70.5 (if you are unfamiliar with this concept, here is an article on RMDs.) Secure 1.0 changed that age to 72. Secure 2.0 has made those RMDs start even later, but with some added complexity:

• If you were born before in 1950 or earlier: no change, you would already be taking RMDs.
• Born in 1951-1959: Your new RMD age is 73.
• Born 1960 or after: Your new RMD age is 75.
• If you were scheduled to take your first RMD in 2023 (you turn 72 this year and were scheduled to take your first RMD due to Secure 1.0, you DO NOT need to take your RMD this year.)
  • Pros: This gives you (and I) more flexibility with your income due to fewer years of "forced" distributions.
  • Cons: If you are not tax planning effectively, you have fewer years of forced distributions and could find yourself in a tax crunch and a higher bracket (we won't let that happen to you.) 
  • Conclusion(s): This is a net positive change for most people. Due to us being proactive in tax planning, Roth conversions, etc., this is a good thing. 

• Starting in 2024, if a spouse passes away and leaves you an IRA, you now have the option to treat it as if it were the deceased spouse's for the purpose of RMDs (your former options were keep it in their IRA or roll it over but treat it as if it were your own.)
  • Pros: If your spouse is younger and passed away, this opens more tax planning options. 
  • Cons: None. 
  • Conclusion(s): This is a net positive change to give the widow or widower more flexibility. 

• Missed RMDs now have a lower penalty, either 25% or 10% if fixed in the "correction window", reduced from 50%. You can still apply for forgiveness if an RMD is missed (this is positive only.)

Roth Related Changes

• Prior to Secure 2.0, Roth money inside an employer plan (401k, 403b, etc., but NOT Roth IRAs) have been subject to RMDs. They still were not taxed, but the government would make you take the money out anyway.  Starting in 2024, these accounts will no longer be subject to RMDs. 
  • Pros: Aligns employer plans to other retirement accounts.
  • Cons: None.
  • Conclusion(s): This is a slightly positive change since it really doesn't affect most people. Roth IRAs remain the same, with no RMDs. 

• Employers can now put matching funds in the Roth side of your 401k or other employer plan, as long as they are not subject to a vesting schedule (effective 2023). 
  • Pros: This incentives Roth savings which can be good for some people, depending on your tax bracket. 
  • Cons: See the next bullet below relating to high income earners for the downside. 
  • Conclusion(s): This is a net positive change for as it is optional to use Roth or not, but if you choose to use it, this is a benefit. 

• For high wage earners (defined as making more than $145k in earned income from a W2 job), and you are making catch up contributions to your employer plan (over age of 50), you MUST put your catch up contributions in your Roth 401k. (effective 2024)
  • Pros: None.
  • Cons: This is forced "Roth-ification" which increases tax revenue for the government now. Also, if your employer does not offer a Roth option, you cannot make a catch up contribution at all. 
  • Conclusion(s): This is a very negative change as it forces people to take an action which may not be in their best tax interest. 
• SIMPLE and SEP IRAs can now have Roth saving options (effective 2023) - Positive Only. 

Education Saving Changes

The most common objection I hear to people using 529 plans (to save for child's education) is that if they do not go to college, all of a sudden any distribution from the 529 is now penalized. 

• Secure 2.0 has a new provision that an unused 529 plan can now be converted to a Roth IRA for the same beneficiary. So if they don't use the money for education, it can now be used for their retirement.  There are some requirements that make this less attractive than it could be though: (1) 529 must exist for 15 years, (2) any contribution to 529 in last 5 years is ineligible (3) Beneficiary must have compensation (so they chose to work instead of go to school), (4) Annual transfers are limited to the lower of their income or the IRA contribution limit, AND (5) lifetime transfer limit is $35k. (These restrictions are ridiculous)
  • Pros: Gives a very limited option to do something with an unused 529.
  • Cons: There are so many restrictions it makes the benefit hard to navigate. 
  • Conclusion(s): This is a slight net positive as it doesn't take anything away from us, but it adds only a little value. 

Retirement Saving Changes

• IRA catch up contribution limits will now increase with inflation (effective 2024) - Positive
• Secure 2.0 introduced an extra employer plan catch up contribution. If you are of the age of 60, 61, 62, or 63, you can now contribute $10k for catch up instead of $7,500 like it is now (will be increased with inflation). Yes, at 64, it drops back down. (effective 2025). - Positive
• SIMPLE IRA contributions limit changes (effective 2024). 
  • These are very convoluted and confusing, so if you have a SIMPLE IRA, we'll talk. 

Things we like that DID NOT Change:

• Back door and mega-back door Roth contributions
• Roth conversions
• Self-directed IRAs
• Age for QCDs

Other Changes that don't affect most people (just the bullet points)

• Lowered the age for eligible penalty free distributions from the employer plans of Public Safety Workers. 
• Updated qualified disaster recovery distributions. 
• New terminally ill distribution clause. 
• New domestic abuse victim clauses.
• Updated personal hardship distribution rules.  
• New qualified long term care distribution clause. 
• Updated 72(t) rollover rules.
• New "Linked Emergency Savings Accounts" can be created in employer plans for emergency access.
• New Solo 401k rules for sole proprietors. 
• Changes to limits for QLACs.
• ETF-like investments available for insurance and annuity accounts.
• Change to ABLE account age for opening accounts.
• Improved credits for employers starting a 401k.

My job is to ensure that we make the best of Secure 2.0 by taking advantage of the positive changes and navigating the negative. I will guide you every step of the way. If you have questions, please let me know and we can talk. We will answer any and all of them. If we get a lot of questions on the same topic(s), we will hold a webinar on the topic.