What SECURE Act 2.0 Means for You

Published: February 24, 2023

In December 2018, Congress passed, and the President signed the original SECURE (Setting Every Community Up For Retirement) Act. Their goal was to help individuals save more and be financially better prepared for retirement. In late December 2022, SECURE Act 2.0 was signed into law, expanding on the 2018 SECURE Act and providing additional retirement savings opportunities. While there are a number of provisions to the Act, some of the key ones that may be of interest include:

Changes to Required Minimum Distributions (RMDs)

Currently, you must begin taking RMDs from traditional IRA accounts at age 72. RMD calculations are based on your life expectancy and must be taken within the calendar year. SECURE Act 2.0 raises the age to 73 in 2023 for those born between 1951 and 1959 and 75 for those born in years 1960 or later. Depending on your tax situation, delaying your RMD may be beneficial. In addition, the penalty for missing an RMD has been lowered from 50% to 25% of the amount not taken.

Increases to Catch-up Contributions

As part of SECURE Act 2.0, catch-up contribution limits to both company retirement plans and IRAs have increased. For company plans, beginning in 2025 the limits will increase for those aged 60 to 63 to $10,000 or 150% of the regular limit, whichever is greater. After 2025, the amount will be indexed to the inflation rate. And the $1,000 catch-up limit for IRAs will increase based on the inflation rate beginning in 2024.

More flexibility in making qualified charitable distributions (QCDs)

QCDs allow individuals aged 70 ½ and older to direct their IRA distributions directly to charity and avoid paying income tax on the distribution. Starting in 2024, the current $100,000 limit will be indexed to inflation. Also, beginning in 2023, IRA account holders will have an opportunity to give a one-time amount of $50,000 to a charitable trust or gift annuity. This amount counts as part of your annual QCD.

Ability to roll over leftover 529 plan funds

Previously, 529 plan beneficiaries could only use funds for eligible educational expenses. However, under SECURE Act 2.0, beneficiaries of these tax-advantaged accounts for education savings will now be able to roll over up to $35,000, tax-free and without penalty, to a Roth IRA, if the 529 plan account has been open for 15 years or more. The maximum rollover limit in any one year is the current Roth IRA contribution limit, which is $6,500 for the 2023 tax year.

There are other changes affecting retirement plan enrollment, matching contributions on student-loan payments, and changes to both Roth IRAs and Roth 401(k) provisions. We encourage you to reach out to us to discuss these changes and how they might impact your wealth plan. You can contact us directly by phone at 212.492.7000 or email us at info@klingenstein.com. In addition, you’ll find News and Insights on our website and educational webinars on a variety of financial topics on our YouTube channel. And please don’t forget to follow us on LinkedInInstagram, and Twitter.

Important Disclosures

This material is provided for informational or educational purposes only and should not be construed as investment, accounting, tax or legal advice. Always consult a financial, tax and/or legal professional regarding your specific situation. This communication is not intended as a recommendation or as investment advice of any kind. It is not provided in a fiduciary capacity and may not be relied upon for or in connection with the making of investment decisions. Nothing herein constitutes or should be construed as an offering of advisory services or an offer to sell or a solicitation to buy any securities or a recommendation to invest in any specific investment strategy. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future returns. The views expressed herein are as of a particular point in time and are subject to change without notice. The information and opinions presented herein are general in nature and have been obtained from, or are based on, sources believed by Klingenstein Fields Advisors (“KF Advisors’) to be reliable, but KF Advisors makes no representation as to their accuracy or completeness. Although the information provided is carefully reviewed, KF Advisors cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. KF Advisors represents two investment advisers registered with the Securities and Exchange Commission: Klingenstein, Fields & Co., L.P. and KF Group, LP. If you are a KF Advisors client, please remember that it remains your responsibility to advise KF Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.