Q1 2023 Advisor Insights 

Written by Keith Blakely, CFA

SECURE Act 2.0

The passing of the SECURE Act (Setting Every Community Up for Retirement Enhancement) in December 2019 marked a significant change to retirement planning. The most notable change in the 2019 SECURE Act was the elimination of the “Stretch IRA”, which requires most non-spouse beneficiaries to withdraw the entire IRA balance by the end of the 10th year following the IRA owner’s death.

In December 2022, Congress passed the SECURE Act 2.0 inside of the most recent spending bill. The good news is that the bill did not create any major headline changes to the degree of the elimination of the Stretch IRA noted above. On the opposite side of the spectrum, SECURE 2.0 does create an additional layer of complexity by introducing over 90 changes to IRA and employer plan tax rules that are introduced at varying dates over the next ten years.  Below are a few of the more notable changes that SECURE Act 2.0 will bring to investors nearing or in retirement. 

1. Starting Age of Required Minimum Distributions (RMDs) – The 2019 SECURE Act pushed back the starting age of RMDs to the year in which the owner of a retirement account turns age 72. SECURE 2.0 further delays the required distribution to age 73. If you took an RMD in 2022, you will be required to do so again in 2023. In 2033, the age at which RMDs must begin is extended all the way out to age 75.

2. Qualified Charitable Distributions (QCDs) – There is no change to the age at which you may begin to make QCDs from your IRA, which is 70 ½. However, the maximum annual QCD limit has been stuck at $100,000 for 15 years. Beginning in 2024, the QCD limit will be linked to inflation increases, which is a welcome update.
3. Expanded Use of Roth Accounts – For anyone questioning whether Roth IRA/401k accounts were a target for future elimination, SECURE 2.0 puts those concerns to bed. Secure 2.0 does not include any provisions that restrict or eliminate existing Roth strategies. In fact, the bill continues to push for increased usage of Roth accounts, and elimination of mandatory Roth RMDs from Qualified Plans starting in 2024. Welcome news for owners of Roth accounts!
4. 529 to Roth IRA Transfer – Although small in dollars, one headline grabbing Roth expansion is the ability to transfer excess funds from a beneficiary’s 529 account to the beneficiary’s Roth IRA, starting in 2024. Multiple strings will be attached, but in summary, the 529 plan must have been maintained for a minimum of 15 years and the annual limit to transfer is equal to the IRA contribution limit ($6,500 in 2023) less any regular IRA/Roth IRA contributions. In addition, the max lifetime amount per individual is $35,000.  

The remaining 80+ changes that we did not address above have a similar level of complexity, primarily focusing on expanded access/savings vehicles.  While no single provision will cause us to make immediate changes to financial plans, the entirety of the bill will have lasting impacts over the next several years. We welcome the opportunity to meet with you in 2023 and discuss any nuances that may be advantageous to you or your family.

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We provide the information in this newsletter for general guidance only. It does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, investment, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, expressed or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.