Secure Act 2.0 Legislation: Interesting Changes for Retirement Plan Investors in 2023 and Beyond

During the last few weeks of December 2022, the government passed the most recent rendition of retirement plan legislation with “Secure Act 2.0”. With this law comes a number of changes for retirement plan investors. Here are modifications that caught our attention:

  • Required Minimum Distribution Age: The age in which retirement plan investors must begin annual distributions from their retirement plans has increased to 73 in 2023 and will be bumped out even further in 2033 with a beginning age of 75.
  • Catch-Up Contributions: Retirement investors age 50 (and greater), will see a number of changes to the rules surrounding catch-up contributions. From a positive perspective, (beginning in 2024) the catch-up contribution limits will be adjusted annually for inflation. Also on a positive note, (beginning in 2025) the catch-up limit will increase by 50% for those retirement plan investors age 60-63, however, a less desirable outcome of the Secure Act 2.0 is the requirement for catch-up contributions to be made on an after-tax (Roth) basis for those with income greater than $145,000. This change will begin in 2025.
  • 529 Plan to a Roth IRA: 529 Plan investors have an interesting solution for dollars remaining in their 529 Plans. They can complete a one-time rollover (up to $35,000) from an existing 529 Plan to a Roth IRA. One important note, the 529 Plan must be in existence for at least 15 years to achieve eligibility. The effective date of this change is 2024.
  • Qualified Charitable Distribution (QCD): QCDs have been permanent on the landscape since 2016. This option allow retirement plan investors to gift directly to a qualified charity from their IRA and avoid the tax consequences for the distribution. The retirement investor must be at least age 70.5 to qualify and the maximum annual amount has been set at $100,000 since 2016. The Secure Act 2.0 changes allow for the $100,000 cap to be indexed annually for inflation. Also, retirement investors are now allowed a unique QCD option by making a one-time contribution (up to $50,000) to a charitable gift annuity or charitable remainder trust.

For those of you that are existing clients, we will cover all of the changes that we feel impact you directly during our Annual Investment Review Meetings. In the meantime, if you have questions or would like more details, please contact our Certified Retirement Services Professional (CRSP), Cody Allen at 563.388.2622.

By Cody Allen, Senior Vice President