SECURE Act 2.0 - What You Need To Know

On December 29, 2022, SECURE Act 2.0 was made law through the Consolidated Appropriations Act of 2023. Key components of the act include changes to Required Minimum Distribution (RMD) starting ages, changes to retirement plans, and the ability to rollover 529 assets to Roth IRAs.

Required Minimum Distributions (RMD)

One of the most pertinent changes of SECURE Act 2.0 is the increased age at which RMDs begin. Starting in 2023, individuals born between 1951 and 1959 will begin taking RMDs in the year they turn 73 from their tax-deferred retirement accounts. For those born in 1960 or later, the beginning age for RMDs will be 75. RMDs do not apply to Roth IRAs and, beginning in 2024, RMDs will not be required from Roth accounts in employer retirement plans. The penalty for missing all or a portion of your RMD is also reduced from 50% to 25%.

Qualified Charitable Distributions (QCD) can still be made starting at 70 ½, but there are changes to the annual maximum on QCDs and to where they may be directed. The annual maximum QCD amount will remain at $100,000 until 2024 when it will begin being indexed for inflation. Taxpayers also have a one-time opportunity to direct up to a $50,000 to a Charitable Remainder Annuity Trust (CRAT), Charitable Remainder Unitrust (CRUT) or a Charitable Gift Annuity (CGA).

Employer Retirement Plan Changes

Individuals and employers can now contribute to Roth SIMPLE IRAs and Roth SEP IRAs. One caveat is that it may take time for custodians, employers and the IRS to implement policies and procedures to make contributions to these types of accounts.

Another major change in SECURE Act 2.0 is an individual’s ability to request that their employers matching contributions be made into their employer plan’s Roth account. However, the employer plan must have a Roth option set up, and the matching contributions can only be made after the employee is fully vested in the plan. The matching Roth contributions would count towards the employee’s income in that tax year.

Increased Catch-Up Contributions

Starting in 2025, individuals aged 60-63 can make annual catch-up contributions of up to $10,000 to employer retirement plans, indexed for inflation. However, if you earn more than $145,000 in the prior calendar year, all catch up contributions (at age 50 or older) must be made in Roth contributions. Those making less than $145,000 will be exempt from the Roth requirement, and self-employed individuals whose income is not considered wages would not have to make catch up contributions to Roth.

IRA catch-up contributions for those age 50 and older (currently set at $1,000) will become indexed for inflation starting in 2024.

529 Plan Changes

Beginning in 2024, individuals will have the ability to roll assets from their 529 plans to a Roth IRA owned by the 529 plan beneficiary. There are a few requirements that must be met to complete a 529 to Roth rollover which include:

• The 529 plan must have been in place for 15 years or longer
• Any contributions (and their earnings) made in the last 5 years are ineligible for a rollover to Roth
• The annual limit on a 529 to Roth rollover is the IRA contribution limit for the year less any contributions that have already been made
• There is a lifetime limit on 529 to Roth rollovers of $35,000
• All rollovers must be direct trustee to trustee transfers. No 60-day rollovers.

If you have any questions about how these changes may impact you, please reach out to your advisor at SGK.

IMPORTANT DISCLOSURE INFORMATION

For general informational purposes only. Subject to change without notice. There can be no assurance that any of the above content will be applicable for your individual situation, or that any financial planning or consulting services provided by provided by Steigerwald, Gordon & Koch, Inc. (“SGK”) will prove successful. SGK is neither a law firm, nor a certified public accounting firm, and no portion of its services should be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained in this presentation serves as the receipt of, or as a substitute for, personalized investment advice from SGK. A copy of our current written disclosure Brochure discussing our advisory services and fees is available upon request or at www.sgkwealthadvisors.com. The scope of the services to be provided depends upon the needs and requests of the client, and the terms of the engagement. Please Remember: If you are a SGK client, please contact SGK, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently.