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When The SECURE ACT 2.0 was signed into law in December of 2022 there were a couple of benefits for the individual saver in America. The Act provided within its legislation some key changes to Required Minimum Distribution (RMD) Rules, Catch-Up provisions within retirement plans, Qualified Charitable Distributions (QCDs) and 529 Plan transfers to ROTH IRA’s.
Under SECURE ACT 2.0, the age when mandatory distributions for individuals with an IRA, 401(k), and/or 403(b) had to be taken was changed from age 72.
❖ If you turned age 72 in 2022, you still need to take your mandatory distribution at age 72
❖ If you turn age 72 after 2022 and age 73 before 2033 you mandatory distribution a age is now 73
❖ If you turn age 74 after 2032 your mandatory distribution age is now 75
❖ The penalty for a missed mandatory distribution is now 25%, reduced from the previous penalty of 50%.
❖ Starting in 2024, if you have a ROTH within an employer sponsored plan you no longer have to take a required minimum distribution.
SECURE ACT 2.0, in trying to promote retirement savings, has changed Catch-Up Provisions for employer sponsored plans like 401(k)’s.
❖ For employees age 50 and older, IRS Regulations allow an extra contribution of $7,500 per year above the allowable maximum contribution
❖ For employees that have attained the age of 60 to age 63 the SECURE ACT 2.0 has increased this catch-up provision to $10,000 or 50% more than the regular catch- up provision whichever is the greatest
SECURE ACT 2.0 has also changed QCDs or Qualified Charitable Distributions. QDCs allow you to contribute part or all of your Required Distribution from your IRA to an IRS recognized charity.
❖ You can make an annual donation of up to $100,000 from your IRA (not 401k, etc) and it will count towards your RMD. Starting in 2024 this amount will be indexed for inflation
❖ Allowed also will be a one-time annual gift of up to $50,000 to a Charitable Remainder Unitrust, Charitable Remainder Annuity Trust or a Charitable Gift Annuity.
One issue many people have asked about since they started saving for college expenses is what do I do with a 529 Plan if it is not all used? SECURE ACT 2.0 has created a solution. Starting in 2024, plan beneficiaries of 529 plans will be allowed to make penalty- and tax-free rollovers of unused funds from their Plan to their ROTH IRA, provided certain criteria are met.
❖ The 529 Plan beneficiary must be the IRA owner and will have to have earned income
❖ Rollovers from the 529 Plan will be subject to the annual Roth IRA contribution limits in the year they are rolled, less any contributions you’ve previously made for the year
❖ The 529 Plan must be at least 15 years old
❖ Any contributions or earnings from the past five years within the 529 plan are not eligible to be rolled into the Roth IRA
❖ The lifetime maximum of funds rolled over is $35,000
Your advisor and financial plan should look at the short- and long-term goals for you and your family. Part of that is keeping abreast of new laws and regulations that can help you meet those goals.
The trusted advisor’s goals should be aligned with yours and empower confidence at all times. Make sure he or she is a fiduciary and not only willing, but able to take on that responsibility for you.
Contact: Mark Minder, RFCⓇ, MBA
DWG is the 401(k) arm of Darden Wealth Group. DWG does not give tax or legal advice. This is information only and does not constitute advice. Please consult your financial advisor or tax professional for information specific to your situation.