3 Significant Changes to Retirement Savers: SECURE Act 2.0
Photo by: The Clark Group Asset Management

3 Significant Changes to Retirement Savers: SECURE Act 2.0

Congress passed the SECURE Act 2.0 on December 23rd, 2022, and the president signed it into law on December 29, 2022. There are significant changes within this new legislation that affect all types of retirement savers and investors. You may be asking yourself, why SECURE Act “2.0” and what is the original SECURE Act?

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At the end of 2019, congress passed the original SECURE Act. In our opinion, one of the most impactful changes that came from that new law is that Required Minimum Distributions (RMDs) have been pushed from 70 ? to 72. In addition, the biggest change in our eyes has to do with 401ks and IRAs once you pass away. The SECURE act stated that if you pass away on or after January 1, 2020, any non-spouse beneficiary that inherits an IRA or 401k must deplete the account within 10 years. With that rule, tax planning and strategizing with your financial advisor and/or tax advisor should take place so that your non-spouse beneficiaries (ex. children) are not hit with a huge tax burden. If your spouse inherits a qualified retirement account, they can either rollover the funds into their own IRA or 401k, or they can keep it as an Inherited IRA, but they do not have to deplete the account within 10 years. However, even if your spouse inherits your qualified retirement account and eventually passes away, to which your children inherit those qualified retirement assets, they will then have the 10-year clock start and have to pay taxes on all of the distributions. One way to avoid taxation on the 10-year rule is by doing a Roth conversion, and whether you should utilize that strategy really comes down to your own unique tax situation (current tax bracket and expected tax bracket in the future).


With the SECURE Act 2.0, there were several major changes to the original law, from new RMD ages to student debt. In this article, I am going to highlight 3 major changes that we think will affect our clients and their families the most.

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1)???Starting in 2024, if you earned more than $145k in the previous year, your "catch-up" contribution of $7,500 is NO longer tax-deductible and is instead moved into a Roth portion of the 401k. Currently, the annual deductible contribution limit into a 401(k) is $22,500, but if you are 50 years and older, it is an additional $7,500 for a total of $30,000 per year which can be tax deductible. There are both positives and negatives to this for high-income earners. On the bright side, you are somewhat forced to have a tax-free bucket working for you if you are contributing as much as possible to your 401(k). We believe taxes are likely to go up from here, and having a tax-free bucket in retirement can be advantageous. In addition, your beneficiaries (more specifically non-spouse beneficiaries like children) will have a tax-free bucket once they inherit the account, and the 10-year depletion rule won't impact their taxes as much. However, you as the retirement saver will ultimately be paying more in taxes while you are working.

2)???The RMD age has been pushed back, again… The age at which owners of retirement accounts are required to take RMDs is now up to 73 years of age, which took place starting January 1, 2023. That means if you turn or turned 72 in 2023, you do not need to take an RMD until next year. SECURE 2.0 also pushes out the age at which RMDs must start to 75 starting in 2033. Why does the age keep getting pushed back? One assumption is that people are living a lot longer than they were a few decades ago. Beginning this year, the steep penalty for failing to take an RMD will decrease to 25% of the RMD amount not taken, which was previously an egregious 50%. At The Clark Group, we help our clients satisfy their RMDs each year.

3)???529 plans are known to be tax-free college savings accounts, but to also create a tax-free retirement bucket as well? SECURE Act 2.0 now allows for up to $35,000 of a remaining 529 plan balance to be rolled over into a Roth IRA for the beneficiary as long as the account has been opened for 15 years or more. This is a huge benefit for long-term savers! You can essentially help start generational planning right after college if there is a remaining balance and you allow compound interest to grow those assets tax-free upon a qualified distribution.


New rules like this are why it makes sense to work with a financial planner to help you strategize on what makes the most sense for your financial situation. Speak to your fiduciary advisor or tax advisor further about these new rules.


For important disclosures please visit: clarkgroupam.com/disclosure

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