Contained within the federal legislature’s recently enacted Consolidated Appropriations Act of 2023 is the SECURE 2.0 Act of 2022 which is designed to strengthen the country’s retirement system. This act has provisions that are intended to make saving for retirement easier and more flexible for most Americans.
In her eAlert this week, Warner Partner Sara Nicholson shared information about SECURE 2.0 and some of the changes that will affect retirement and tax planning for many people. She focused on changes that affect areas where our clients often have questions: retirement savings options, required minimum distributions, 529 plans with unused funds, qualified charitable distributions and special needs planning.
Three important changes to be aware of from the SECURE 2.0 Act:
1. The act makes several changes regarding how and at what age you must take required minimum distributions, also known as RMDs, from your tax-favored accounts, including these changes:
- For those turning 72 in 2023 or later, the age at which you must begin taking RMDs will rise to age 73 instead of the current age of 72. Starting in 2033, the age will rise again to age 75.
- Lifetime RMDs for Roth accounts in an employer plan (such as a 401(k) plan) are eliminated beginning in 2024.
- The penalty for a failure to take an RMD in any year is reduced to 25% (from 50%), and further to 10% if the failure is corrected in a timely manner.
2. The act changes options for making qualified charitable distributions, also known as QCDs, directly from your IRA to a charity. These distributions are excluded entirely from your gross income and can be applied toward your RMD for that year.
- Historically, QCDs must go directly to a charity. A provision of the new act allows donors to make a one-time QCD of $50,000 to a split-interest charitable entity, such as a charitable remainder trust or charitable gift annuity. In other words, you can benefit both family members and charities with a one-time QCD of $50,000.
- The annual $100,000 QCD limit is now indexed to increase each year with inflation.
3. The act allows the beneficiary of a 529 plan to roll over unused funds to a Roth IRA, with limitations.
To read Sara’s full eAlert on SECURE 2.0, click here. If you have questions about how SECURE 2.0 will affect you and your retirement savings plan, contact your Warner estate planning attorney or Sara Nicholson at snicholson@wnj.com or at 269.276.8131.
