SECURE Act 2.0: Your Retirement
In the final article of our SECURE Act 2.0 series, we’ll review the impact of recent legislation on your retirement – specifically Roth accounts and Required Minimum Distributions. Remember, SECURE Act 2.0 was enacted on December 29th, 2022 and seeks to reform how Americans prepare for retirement. Previously, we’ve discussed provisions impacting individual savers and employer savings plans.
All Things Roth
Tax planning for your retirement savings is important. To help with that, you can typically choose between two account types as you save for retirement: Traditional IRA or employer-sponsored plans, or Roth versions of the same.
Either way, your retirement savings grow tax-free while they’re in your accounts. The main difference is whether you pay income taxes at the beginning or end of the process. For Roth accounts, you typically pay taxes up front, funding the account with after-tax dollars. Traditional retirement accounts are typically funded with pre-tax dollars, and you pay taxes on withdrawals.
That’s the intent, anyway. To fill in a few missing links, the SECURE 2.0 Act:
- Eliminates Required Minimum Distributions for employer-sponsored Roth accounts, such as Roth 401(k)s and Roth 403(b)s, to align with individual Roth practices (2024)
- Establishes Roth versions of SEP and SIMPLE IRAs (2023)
- Lets employers make contributions to traditional and Roth retirement accounts (2023)
- Lets families potentially move 529 plan assets into a Roth IRA (2024)
Speaking of RMDs
Not surprisingly, the government would prefer you eventually start spending your tax-sheltered retirement savings, or at least pay taxes on the income. That’s why there are rules regarding when you must start taking Required Minimum Distributions (RMDs) out of your retirement accounts. That said, both SECURE Acts have relaxed and refined some of those RMD rules.
- Extended RMD Dates (2023): the original SECURE Act postponed when you must start taking taxable RMDs from your retirement account—from 70 ½ to 72. The SECURE 2.0 Act extends that deadline further. If you were born between 1951–1959, you can now wait until age 73. If you were born after that, it’s age 75.
- Reduced Penalties (2023): If you fail to take an RMD, the penalty is reduced from a whopping 50% of the distribution to a slightly more palatable 25%. Also, the penalty may be further reduced to 10% if you fix the error within a prescribed correction window.
- Aligned RMD Rules for Personal and Employer-based Roth Accounts (2024): As mentioned above, RMDs have been eliminated from employer-based Roth accounts. If you’ve already been taking them, you should be able to stop doing so in 2024.
- Enhanced RMDs for Surviving Spouses (2024): If you are a widow or widower inheriting your spouse’s retirement plan assets, you will be able to elect to determine your RMD date as if you were your spouse. This provision can work well if your spouse was younger than you.
How else can we help you incorporate SECURE 2.0 Act updates into your personal financial plans? As is the case with most legislation, there are more updates than we have space for in a single article, or series of articles. Our goal is to highlight the most relevant provisions to your savings and retirement. As such, before you proceed, we hope you’ll consult with us to discuss the details specific to you.
Come what may in the years ahead, we look forward to serving as your guide through the ever-evolving field of retirement planning. Please don’t hesitate to reach out to us today with your questions and comments.