SECURE Act 2.0: Key Areas to Discuss with Your Wealth Advisor

The passage of SECURE Act 2.0 has been the subject of a lot of press coverage, and rightfully so: it may dramatically affect how your retirement plans fit into your overall wealth plan. Dipping into the 400+ pages of legislation, here are just a few key areas you may want to discuss with your wealth advisor regarding retirement, tax, and estate planning opportunities presented by SECURE Act 2.0.

Delayed Start to Required Minimum Distributions (RMDs)

Among the major changes to the retirement plan system included in the SECURE Act 2.0 is an update to RMD rules, enabling you to keep money in your tax-free retirement accounts longer. The starting age for RMDs has been increased from 72 to 73 and will increase again to 75.

Note: Anyone turning 72 in 2023 gets an immediate one-year reprieve from starting RMDs.

Unused Section 529 Plan Funds - Rollover to Roth IRAs

A significant change to Section 529 plans – tax-advantaged investment accounts that can be used only to cover educational expenses— addresses concerns about unused or underutilized plans and creates a new opportunity for planning and contributing to a child’s retirement savings. Often, a child or grandchild may not use the entire balance of their 529 plan (because they receive grants or scholarships, for example). Beginning in 2024, if you have funds left over in a Section 529 account for an individual, you can roll over up to $35,000 of that excess into a Roth IRA account for the benefit of that individual. There are some caveats, such as the 529 account being opened for over 15 years and adherence to annual IRA contribution limits.

Enhanced Qualified Charitable Distributions (QCDs)

Individuals 70½ or older are permitted to make distributions of up to $100,000 from their IRA directly to a qualified charity using a QCD. QCDs can help you avoid paying tax on your RMD or make your charitable gifting more tax efficient, regardless of RMD status. SECURE Act 2.0 expands the QCD by allowing a one-time transfer of up to $50,000 to a charitable remainder annuity trust, a charitable remainder unitrust, or an immediate charitable gift annuity for your own benefit. In addition, starting in 2023, SECURE Act 2.0 will begin indexing the current $100,000 limit for inflation.

Issues Faced by Special Classes of IRA Beneficiaries Addressed

Under SECURE Act 2.0, several issues and concerns about classes of IRA beneficiaries were resolved.

For example, often a special needs trust (SNT) is named as beneficiary of an IRA rather than directly naming a loved one with a disability. Many SNTs are drafted so that any assets remaining after the SNT beneficiary’s death go to charity. Under the IRA rules, a charity is not considered a designated beneficiary, so the SNT was required to take (and pay taxes at the highest rate) on the entire IRA balance in five years. Effective immediately, with regard to SNTs, the charity can be a designated beneficiary, so the SNT qualifies for the 10-year payout or, in appropriate circumstances, for RMDs to be paid over the beneficiary’s lifetime.

In addition, SECURE Act 2.0 provides even more benefits for naming a surviving spouse as your beneficiary, in light of the IRS’ new guidance on the 10-year rule. We anticipate further clarification on this 10-year rule and will keep you informed.

How can you take advantage of SECURE Act 2.0?

In addition to the changes described above, there are many other SECURE Act 2.0 provisions impacting IRAs and retirement plans—from auto-enrollment requirements and student loan payments as contributions to emergency distributions and employer matches treated as Roth contributions—so please reach out to your wealth advisor to discuss how you can take advantage of SECURE Act 2.0 opportunities, and how SECURE Act 2.0 might impact your wealth plan.