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SECURE Act 2.0:  Financial Planning Opportunities Thumbnail

SECURE Act 2.0: Financial Planning Opportunities

Many changes have arisen out of the recent passage of the “Setting Every Community Up for Retirement Enhancement Act of 2022” (or more commonly referred to as the “SECURE 2.0” bill). Some changes will take place as soon as this tax year, while others will be phased in over a several year period.  

This article is not intended to be a comprehensive list of the changes (the full 130 page bill can be found here for anyone interested), but instead to draw out several of the top planning considerations that this legislative change impacted.

As always, please reach out to your advisory team with any questions – if you are not already a WGCA client, please contact us here and one of our advisors will reach out to you.  

529 plan rollovers to Roth

One of the most surprising changes that arose out of this bill was the ability to roll some excess 529 funds into a Roth IRA for the 529 plan beneficiary. This gives parents the opportunity to potentially “kick start” retirement savings on behalf of their children instead of needing to take a penalty for an unqualified withdrawal from a 529 account should the situation arise where the student has excess funds in their 529 account.

Note: the beneficiary of the 529 and owner of the 529 must be the same person, and the 529 must have been opened for at least 15 years. There is also a cap of $35,000 in the amount that can be rolled over, so the rollover will likely have to take place over a several year period (awaiting Congressional/IRS guidance on this).

This rule will take effect on 1/1/2024. Please note that rollover amounts cannot include any 529 contributions made in the last 5 years (the IRS doesn’t want people “backloading” a 529 account just to be able to convert it to a Roth a few years later), and it is subject to normal IRA contribution limits. Please speak with your advisory team if you believe the 529 you set up for a loved one (child, grandchild, etc) may be overfunded and have cash left over once the student graduates to discuss options.

Employer matching contributions on student loans 

To alleviate some of the ballooning student loan amounts outstanding, the new bill allows employees to receive matching contributions on the repayment of their student loans from their employer. It permits an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA with respect to “qualified student loan payments.” The rule will be effective for contributions made for plan years beginning after 12/31/2023.

This is a complex rule for both employees and any employers that elect to participate (participation is not mandatory, this is viewed as an ancillary employee benefit), but as a brief example: if John graduates with $50,000 in student loan debt and begins making student loan repayments of 10% of his annual salary, an employer could elect to decide to match those contributions in some amount (from zero all the way up to dollar-for-dollar), in lieu of making matching contributions to his 401k.

The main objective of this rule is to better allow recent graduates (or those with a large amount of outstanding student debt) the ability to repay those loans and turn their attention to saving toward retirement more quickly than they otherwise may have been. In other words, this is the government’s way of increasing the incentive – assuming wide adoption across corporate America takes place – to quickly pay down debt and start saving towards retirement.

Higher catch-up limits to ages 60-63

This portion of the bill increases these limits to the greater of $10,000 or 50% more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62 and 63. The increased amounts are indexed for inflation after 2025. The measure is effective for taxable years beginning after Dec. 31, 2024.

Minimum Distribution Age for Retirement Accounts

The Secure Act of 2019 (Secure 1.0) increased the required minimum distribution (RMD) age to 72 from 70 1/2. Secure 2.0 further increases the RMD age to 73 starting on Jan. 1, 2023, and then moves all the way up to 75 starting on Jan. 1, 2033.

If you are already taking RMD’s, these changes will not affect you, however, this gives many people approaching RMD age an extended period of time to consider cash flow options before their actual RMD needs to be taken. Having these extra few years to delay your RMD should be looked at as an opportunity to potentially execute a Roth conversion strategy. While doing so would create taxable income in the year you convert, planned well, can be a powerful long-term tax planning tool.

Changing required minimum distribution rules for Roth 401(k)s

Currently, while Roth IRAs come with no required minimum distributions (RMDs) during the original account owner’s life, that’s not the case for Roth 401(k)s. Starting in 2024, the pre-death distribution requirement would be eliminated.

Help with finding lost retirement assets

This section creates a national, online searchable “lost and found” database for Americans’ retirement plans at the Labor Department. The database will enable retirement savers, who might have lost track of their pension or 401(k) plan, to search for the contact information of their plan administrator. The bill outlines that the database should be online by 12/31/2024.

By Anthony Cortina, CFP®

Director of Financial Planning & Advisory

About Wolf Group Capital Advisors

At Wolf Group Capital Advisors, a comprehensive wealth management firm and Registered Investment Advisor (RIA) based in Washington D.C. metropolitan area, nothing is more important than the fiduciary responsibility we have in managing your wealth. Taking the utmost care, we focus on providing advice tailored to your specific circumstances. With more than two decades advising U.S. expatriates and non-US citizens employed by international organizations, we are uniquely qualified in investment strategies addressing global issues. Empathy and curiosity—combined with our experience in life planning and investment management—enable you to explore a wider set of possibilities that can lead to a fulfilling life you’ve worked hard to attain.


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Information found on article is not intended to be individualized tax advice or legal advice. Please discuss such issues with a qualified tax advisor.