On Thursday, December 29, 2022, President Biden signed into law the “Consolidated Appropriations Act, 2023.”1 Included in this act is SECURE 2.0 which will have implications for financial advisors and their clients.
What are the main points you and your clients need to know? Here, we’ll briefly summarize a few features you may wish to include in your upcoming conversations.
Key Changes Effective in 2023
Not all changes are effective immediately, a welcome difference from the SECURE 1.0 Act passed at the end of 2019 which was effective immediately upon January 1 of the following year. That said, there still are important provisions to keep in mind that went into effect January 1, 2023, or immediately upon SECURE 2.0’s signing.
Required Minimum Distribution Age Increases
The initial RMD age will increase incrementally to age 75 over 10 years. The first increase is to age 73 in 2023. Therefore, those who turn 72 in 2023 get another year to defer starting their RMDs.2
New Employer Matching Options
Employers now have the option to contribute matching and non-elective funds to an employee’s defined contribution plan on a Roth basis.2
Penalty Exceptions for the Terminally Ill
Those who are terminally ill will not be required to pay the additional 10% penalty for distributions.2
Reduced Penalties for Missed RMDs
Failure to take required RMDs previously resulted in a 50% penalty, now reduced to 25%. If corrected in a timely manner, penalties may be reduced further to 10%.2
Expanded IRA Charitable Distributions
SECURE 2.0 allows for a one-time $50,000 distribution to charities through charitable gift annuities, charitable remainder unitrusts and charitable remainder annuity trusts, and also indexes the annual IRA charitable distribution limit of $100,000.2
Changes In Effect After 2023
Thankfully, there is a little more breathing room with version 2.0 as it affects implementing other changes, including the following:
Indexing IRA Catch-up Limits
Previously, catch-up contributions for those age 50 and over weren’t indexed. Beginning in 2024, they will be.2
New Age Tier for Catch-Up Limits
Beginning in 2025, catch-up contributions for those ages 60–63 increases to $10,000 or 50% more than the regular catch-up amount, whichever is greater.2
After-Tax Catch-up Contribution Requirements
Employees earning more than $145,000 are required to make all catch-up contributions to their qualified retirement plans using after-tax dollars, similarly to a Roth-type account, beginning January 1, 2024.2
Beginning in 2024, Roth accounts in employer retirement plans will no longer be subject to RMD requirements.2
Student Loan Debt
Starting in 2024, employers will be able to "match" employee student loan payments with matching payments to a retirement account.2
After 15 years, 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000.2
There are many other provisions, of course, but these are a good place to start when talking with clients. Please contact your wholesaler if you would like to talk through other implications as this legislation gets implemented. Also, take a look at our helpful resources below that may offer additional topics to serve as conversation starters.
Written by: Sonja V. Hayes, J.D., LL.M, M.B.A., CLU, BFA™ and Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™
Sonja brings more than 20 years of experience in financial services to CUNA Mutual Group. With a focus on insurance product solutions, Sonja works with financial professionals, CPAs and attorneys to clarify the complexities of retirement and estate planning and income distribution.
Marshall is CUNA Mutual Group's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Advisors on advanced retirement planning concepts for retirement and wealth management clients.
1 Whitehouse.gov, Bill Signed: H.R. 2617, December 29, 2022
2 Federal.Senate.gov, SECURE 2.0 Act of 2022, 2022