Wealth Management & Financial Planning

Wealth Management & Financial Planning

Secure Act 2.0 Changes for 2023

Happy new year to you and yours. As you were preparing for the Holidays, Congress was working on passing the SECURE Act 2.0. The original Setting Every Community Up for Retirement Enhancement Act, passed in December 2019 and brought several changes to how we approach retirement planning. On Dec. 23 2022, Congress passed the SECURE Act 2.0, which significantly changed retirement account rules. Many of these changes impact workplace plans rather than IRAs this year; some apply in 2024, others not for a decade. Here are some of the critical areas that have been affected:

• RMD Age Increase: The age for required minimum distributions (RMDs) is increased to 73 starting in 2023. This age will increase to 75, but not until Jan. 1 2033. Anyone currently subject to RMDs under the old 70 ½ or 72 RMD age rules must follow their existing RMD schedule.

• Qualified Charitable Contributions (QCDs) Expanded: Starting in 2023, a one-time only, $50,000 QCD to a charitable gift annuity, charitable remainder unitrust (CRUT), or a charitable remainder annuity trust (CRAT) will be allowed. Also, the QCD limit of $100,000 will be indexed for inflation starting in 2024.

• Roth Changes: Unlike Roth IRAs, Roth accounts in workplace plans, such as a 401(k), have been subject to RMDs during the owner’s lifetime. Beginning in 2024, this will no longer be the case as Roth assets in a plan will be exempt from lifetime RMDs.

SEP and SIMPLE plans can allow Roth contributions beginning in 2023. Further, all plan catch-up contributions for age 50-or-over higher income employees must be Roth contributions, starting in 2024. Finally, beginning immediately, plans can allow employer-matching contributions to be made on a Roth (after-tax) basis.

• 529 Plans: Effective in 2024, beneficiaries of 529 college savings accounts are permitted to roll over up to $35,000 throughout their lifetime from a 529 account in their name to their Roth IRA. These rollovers are subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years. Suppose a 529 beneficiary has found an alternative way to pay for his education. In that case, this new rule will allow any “leftover” funds in the plan to avoid tax or penalty if rolled over.

In Indiana, there have been some additional changes to 529 plans regarding contributions. In the past, the state of Indiana provided up to a 20% tax credit against any state taxes owed on deposits totaling no more than $5000. Starting in 2023, you can deposit $7500 and receive a 20% credit on any taxes owed.

• Missed RMD Penalty Reduction: Effective in 2023, the penalty for failure to take an RMD is reduced from 50% to 25%. If the missed RMD is corrected promptly, the penalty is further reduced to 10%.

These are just a few of the changes that have been made. In total, the SECURE Act 2.0 had more than 90 changes that were made. Financial Enhancement Group is here for you if you need a fiduciary advisor to answer any questions you may have.

Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.

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