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What You Need To Know About Secure Act 2.0

What You Need To Know About Secure Act 2.0

January 05, 2023

The Secure Act 2.0 is now signed into law. The legislation that was held back for over a year is now set to move forward. Most of the legislation remains intact with subtle changes, however, it is our job to provide context on some of the key initiatives we feel are impactful to our clients.  Here are some keys to the Secure Act 2.0…

Section 107- RMD's are pushback for individuals born between 1951 and 1958. If you're born in 1959 you must start your RMD at 73, if you're born later than 1959 you can start your RMD at 75.  There is an error in the language within the bill that will likely be corrected forcing a double RMD for individuals born in 1959.  If you're born in 1960 or later your RMD is now 75.  We consider this mildly significant in the overall scheme of things which may allow for people to hold on to their assets a bit longer. 

Section 317: Retroactive first year solo-401(k) plan deferrals allowed for sole proprietors.  Traditionally you would have needed to set up your 401(k) during the plan year. Now with the changes, you can set up your 401(k) up until the date of tax payment without extensions.  This is pivotal because it allows for profit sharing and contributions for previous tax year.

Section 327: A new post death option for surviving spouse beneficiaries of retirement accounts will allow for the spouse of the deceased individual to be treated as if they were the owner of the account. Meaning if the beneficiary is of RMD age and inherits an account of a younger spouse that is not of RMD age the beneficiary is now allowed to inherit that account as if they are the younger spouse, which delays the RMD process.

Section 202-  This is one of my favorite unknown parts of the legislation. Section 202 repeals the 25% of the account balance limitation for qualified longevity annuity contracts. They have now moved the maximum amount of purchase to $200,000 up from $145,000 in 2022.  QLACs are removed from the RMD equation and can effectively be used to help offset future long-term care cost.

Section 601:  In a nod to operational efficiency, section 601 authorizes the creation of Simple Roth IRA and Sep Roth IRA accounts for 2023 and beyond.  This is powerful due to the fact that this has never been the case. Simple IRAs and Sep IRAs only took pre-tax funds previously.

Section 604: Section 604 of the Secure Act 2.0 continues on the same line of Rothification.  Upon enactment of Section 604, employers will be permitted to deposit matching and or non-elective contributions to employees designated Roth accounts. One caveat of this contribution is that it is immediately vested and not subject to a vesting schedule, however, the amount contributed to the Roth is considered income.

As you may notice a common theme, a lot of the spending provisions inside of this bill have been paid by immediate taxation and non-deferral allowing the immediate taxing of Roth contributions.  What is being discussed here is merely a subsection of the overall legislation which is all encompassing.  Whether it be Section 126, the 529 to Roth Rule, or Section 603 where high-wage earners are forced to use Roth option regarding the catch-up contribution, the Secure Act 2.0 is very similar to what was presented roughly a year or so ago.  To find out how Secure Act 2.0 impacts your plan,  reach out or email kevinthompson@9icapitalgroup.com with your questions. 

Secure Act 2.0 Breakdown

Congressional Bill Secure Act 2.0

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