Tax Talk – The Secure Act 2.0

This was signed on December 23, as part of the Omnibus Appropriations package. The main purpose was funding the federal government but it was filled with other things as well including the SECURE ACT 2.0

There are some notable changes we want to cover.Raising of RMD Age

The one biggest, most notable change that will affect the most people this year, is the RMD, or the required minimum distribution age being raised. This is the age where you have to take out distributions from an IRA or a 401k. For years it had been 70 1/2 until the SECURE ACT raise it to up to 72 in

Now, the SECURE ACT 2.0, moved it to up to 73 beginning in 2023. If you are just now turning 72,  you do not have to take out your minimum distribution until you’re 73.

Changes to Contribution Limits and Early Access

A couple of changes in there are around being able to put more into plans and catch-up provisions. The catch-up provision of $1,000  increases now with inflation.

There are now a few more ways to avoid the 10% early withdrawal penalty for taking money out of a retirement plan before 59 1/2.  There are more ways to access it due to hardships including domestic abuse and terminal illness.

These withdrawals are still taxable, it is just the penalty for early withdrawals that is waived.

ROTH Accounts

ROTH options will now be available in SIMPLE and SEP IRAs which are used with small businesses and self-employed individuals. If that is you or someone you know, then at a minimum we should have a conversation, about whether it makes sense to save in traditional accounts, or in a ROTH or a ROTH alternative.

529 Education Accounts

In 2024 this bill allows for a limited period where you can take your 529 plans that were not or won’t be needed for education, and roll them into ROTH IRAs. There are a couple of limitations, you can only move as much as your annual contribution limit and you’ve had to have the 529 for 15 years.

Qualified Charitable Distributions (QCD)

With a QCD, you can take money out of your IRA and give it directly to a charity and that can be used to satisfy your RMD. A QCD has to go straight to the charity to avoid taxes. If you take a withdrawal, put it in your account, and then give it to a charity, you’re only allowed to deduct on your taxes if you itemize your taxes and fall within the limits.

You are not limited to your RMD, you can give more with a QCD year, right now it’s up to $100,000 but now that will also increase with inflation.

The other change is not you are allowed for a one-time, $50,000 QCD to be made to a charitable gift annuity or charitable remainder trust. So if you’re charitably minded and are looking at different ways to put money aside for charity, not just now but in the future, these are some cool options that are available that we should discuss.

The only other notable thing that I saw that I thought it would be important to mention is they’re trying to create a database of all retirement accounts by 2025. The reason stated is so you can find any lost retirement accounts.