Now that the new Secure Act 2.0 has been passed, there are several new changes that could impact you and your finances. Fortunately, some of those changes might help you boost retirement savings and maximize certain investments.
Here are some key points of the law, and what they might mean for you:
Secure Act 2.0: 529 Plan Flexibility
With the Secure Act 2.0, Congress seems to be incentivizing more people to save for college with 529 plans. One criticism of 529 plans has been the limited investment options included with them. But this new law has introduced the option of rolling over 529 plan assets to a Roth IRA beginning in 2024.
These assets can be moved in the beneficiary’s name 15 years after the plan was started, and rollovers are subject to annual Roth contribution limits. No more than $35,000 can be moved during the beneficiary’s lifetime, and contributions to the 529 plan within the last 5 years cannot be moved to a Roth IRA.
This change gives investors more options for their 529 plans, making it an even more dynamic investment option.
Changes to Required Minimum Distributions (RMDs)
Secure Act 2.0 once again extends the age of when individuals must take RMDs from traditional IRAs and workplace retirement plans, raising it from 72 to 73. As of Jan. 1, 2033, that number will again rise to 75. Additionally, as of this year, the penalty for failing to take RMDs on time will drop from 50% of the undistributed amount to 25%.
Increasing the age to take RMDs means that investors have more time to do Roth conversions. But if you were to retire early or have a significant drop in taxable income, you might want to start executing Roth conversions earlier to reduce your RMDs later on.
Increased Contribution Amount for Qualified Charitable Contributions (QCDs)
Currently, people aged 70 ½ or older can move up to $100,000 in distributions per year from a traditional IRA to qualified 501(c)(3) charitable organizations. That will change in 2024, when a new rule will change the maximum contribution amount based on the inflation rate.
As of this year, you can also use up to $50,000 (indexed for inflation) of a QCD to fund a Charitable Remainder Unit Trust (CRUT), Charitable Remainder Annuity Trust (CRAT) or a Charitable Gift Annuity (CGA).
Strategies to Consider
As the changes from this law go into effect, there are some ways you can take advantage of these new opportunities.
First, it seems that the government is making college savings accounts more flexible as the cost of college continues to skyrocket. This helps alleviate some of the concern of overfunding this account. We are still strong proponents of 529 accounts and having the flexibility makes these accounts even better.
Additionally, as the government pushes back on your required distributions, they are essentially shrinking the time you need to take the distributions. This may make your RMDs much larger and possibly cause you to jump up tax brackets. One of the planning strategies we see is to start executing Roth conversions from the time you retire or when income is low until you need to take those distributions. This will lower your future RMDs and keep your taxes low in retirement.
Planning for Retirement
As changes from Secure Act 2.0 go into effect, make sure you’re aware of any opportunities or changes that might apply to you. Some of these changes can mean serious gains in your retirement savings, so it’s worth looking into.
View this Secure Act 2.0 document for a full overview of the law.
Do you need help planning for your financial future? Contact me today to set up a meeting to talk about your goals.