Broker Check

Secure 2.0

January 10, 2023

Last week, SECURE 2.0 was officially signed into law.  Given that everything is so new there will still be some questions whose true answers are a little fuzzy, but there are a few very relevant changes that I wanted to pass along to you.  By and large it is a bill that does help Americans with retirement planning.  It was a stunning departure from the past 6 years as it was a truly bipartisan agreed upon bill.  Particularly stunning as I watch these idiots from both parties vote on a Speaker of the House for the 12th time while spending more time chirping each other about drinking in the House chamber and sending Twitter selfies from distilleries.  Seems like we are in great hands.


The most significant changes pertain to the age at when you must begin taking RMD’s.  Immediately this year, RMD’s are not required until age 73 as opposed to the current law of age 72.  Additionally, in 2033 that age will increase to age 75.  Planning for RMD’s in advance is extremely important, as you do not want to get kicked into a higher tax bracket on your other income by being forced to withdraw these additional monies.  Don’t wait to address RMD’s, it’s something that we need to plan for in advance.  One thing to consider with the added time is to start doing ROTH conversions annually as you move towards retirement.  As we always discuss, we do not know where tax bracket may be in the future, it's important to have multiple tax buckets to draw from when you actually get to retirement.  

Catch Up Contributions

There are various changes being made to the so called “catch up contribution” limits for retirement plans.  In IRA’s the current allowable is $1,000, however, beginning in 2024 this amount will be indexed by the IRA COLA (Cost of Living Adjustment).  There is also a substantial increase for those working between ages 60-63 saving in a 401K, 403B or 457 plan that allows the greater of $10,000 or 150% of the standard “catch up for that year. 

One additional “catch” though is that for those making over $145,000, the catch up must be via a ROTH contribution which would eliminate the deductibility of it.  Having said that, keep in mind that if your employer offers a ROTH 401K option you are permitted to contribute without the income restrictions placed on owning a private ROTH IRA.

If you have a different plan at your employer such as a SEP or a SIMPLE there are many changes there as well so please contact me directly with your plan details.

Conversions From 529 Plans to Roth IRAs

This may offer the best planning opportunity.  While 529’s have gotten more and more flexible through the years, this is the icing on the cake.  See the bullet points below, but there is now no reason to not save here.  Even more important in my mind, this removes the income restriction for a ROTH. 

  • The 529 plan must have been maintained for the 15-year period ending on the date the amount is distributed from the 529 plan.
  • The amount converted for a year can’t exceed the aggregate amount contributed to the 529 plan (plus earnings attributable) before the five-year period ending on the date of the distribution.
  • The amount must be moved directly from the 529 plan to the Roth IRA (trustee to trustee).
  • The amount, when added to any eligible regular traditional and Roth IRA contribution made for the 529 plan's beneficiary for the year, can’t exceed the IRA contribution limit in effect for the year.

Once these amounts are converted to a Roth IRA, they become subject to the same treatment that applies to amounts converted from traditional IRAs to Roth IRAs. This rule goes into effect after Dec. 31, 2023.

Changes to the early withdrawal penalty

Here is a link to the current exceptions.  Secure 2.0 now specifically includes terminal illness, victims of domestic violence and those who find themselves located in a federally declared disaster zone after a natural disaster.  So while I don’t want any of you dying, beaten or drowning, at least you won’t have to pay that extra 10% for all the new IRS employees they are hiring. 

As I mentioned above, I think this is a net win for taxpayers.  There are also legitimate options to take advantage of.  If any of these options intrigue you don’t hesitate to call me.