Secure Act 2.0 Updates and Changes

The Secure Act 2.0 passed at the end of 2022 put into law several changes that will impact how individuals use and interact with their retirement plans. Below we highlight some of the changes that could be most impactful.

Tax-Free Rollover From 529 Plans to Roth IRAs Beginning in 2024

• Funds that remain unused for education in 529 plans that have been open for at least 15 years can be rolled over tax-free into a Roth IRA. Rollovers are allowed to begin in January 2024.
• This is a change from the previous law where unused funds could be withdrawn, but income tax and a 10% penalty were owed on any earnings.
• Rollovers are subject to Roth IRA annual contribution limits (currently $6,500 per year for 2023 tax year), and there is a $35,000 lifetime cap on the rollover total.
• While the relatively low cap on the rollover amount may be frustrating to some, $35,000 in cumulative post-tax money is an attractive building block to any newly minted post-college graduate looking to build up their net worth, especially when you consider that most beneficiaries of 529 plans are not the ones that originally funded the plan.

Required Minimum Distribution Age Change

• The age that retirement plan participants must begin taking their required minimum distribution (RMD) is increasing gradually over the next 10 years to age 75 by January 1, 2033.
• This is a change from the previous law (Secure Act of 2019), which required individuals to begin taking a RMD by age 72.
• Beginning in the 2023 calendar year, individuals can delay starting to take their RMD until age 73. As an example, anyone turning 72 in 2023 would, previously, have had to have taken their RMD by April 2024, but will now have until April of 2025 until the first RMD must be taken.
• For those that don’t need to draw from their retirement assets, this could be beneficial, especially during strong market years, as it will leave more assets invested in the plan to continue compounding tax-deferred growth.

Source: Secure Act 2.0 of 2022 – Senate.gov : https://www.finance.senate.gov/download/retirement-section-by-section-