The New SECURE Act 2.0 – A Few Highlights

On December 29, 2022, President Biden signed the Consolidated Appropriations Act. Included in the bill is the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0.

The SECURE Act 2.0 attempts to accomplish three main goals:

• Get more people to save more for retirement.
• Improve retirement rules.
• Lower the overall cost of setting up a retirement plan.

There are over 92 Retirement-Savings provisions, and some have already gone into effect, while others will go into effect in 2024, 2025 and some even later. Below are four of them that may impact your financial plans and a good reason to revisit your strategies.

Section 107, Increase in age for required beginning date for mandatory distributions.

• Under current law, participants are generally required to begin taking distributions from their retirement plans at age 72. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. The SECURE Act of 2019 increased the required minimum distribution age to 72. Section 107 further increases the required minimum distribution age further to 73 starting on January 1, 2023 – and increases the age further to 75 starting on January 1, 2033.

Section 108, Indexing IRA catch-up limit.

• Under current law, the limit on IRA contributions is increased by $1,000 (not indexed) for individuals who have attained age 50. Section 108 indexes such limit and is effective for taxable years beginning after December 31, 2023.

Section 109, Higher catch-up limit to apply at age 60, 61, 62, and 63.

• Under current law, employees who have attained age 50 are permitted to make catch-up contributions under a retirement plan more than the otherwise applicable limits. The limit on catch-up contributions for 2021 is $6,500, except in the case of SIMPLE plans for which the limit is $3,000. Section 109 increases these limits to the greater of $10,000 or 50 percent more than the regular catch-up amount in 2025 for individuals who have attained ages 60, 61, 62 and 63. The increased amounts are indexed for inflation after 2025. Section 109 is effective for taxable years beginning after December 31, 2024.

Section 126, Special rules for certain distributions from long-term qualified tuition programs to Roth IRAs.

• Section 126 amends the Internal Revenue Code to allow for tax and penalty free rollovers from 529 accounts to Roth IRAs, under certain conditions. Beneficiaries of 529 college savings accounts would be permitted to rollover up to $35,000 over the course of their lifetime from any 529 account in their name to their Roth IRA. These rollovers are also subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years. Families and students have concerns about leftover funds being trapped in 529 accounts unless they take a non-qualified withdrawal and assume a penalty. This has led to hesitating, delaying, or declining to fund 529s to levels needed to pay for the rising costs of education. Section 126 eliminates this concern by providing families and students with the option to avoid the penalty, resulting in families putting more into their 529 account. Families who sacrifice and save in 529 accounts should not be punished with tax and penalty years later if the beneficiary has found an alternative way to pay for their education. They should be able to retain their savings and begin their retirement account on a positive note. Section 126 is effective with respect to distributions after December 31, 2023.

You will continue to see articles on this legislation due to the number of changes it made when saving and/or living off your retirement assets. When this amount of legislation is passed, it typically prompts many individuals to ask how this may impact their planning and portfolio in the future. We recommend consulting with a financial professional to ensure each of the changes is optimized to your plan.

Should you have specific questions about your own planning and would like to consult with our firm, please reach out to [email protected] or via phone at 216-810-5900.

---

The U.S Senate, Committee on Finance was a resource I used and is available online.

Secure 2.0_Section by Section Summary 12-19-22 FINAL.pdf (senate.gov)

Cleveland Wealth, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.