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Blog: The VLP Live Greater View: SECURE 2.0 Brings Several Changes to Your Financial Plan

March 14, 2023

Secure 2.0: How new legislation could affect you:

The SECURE 2.0 ACT has now passed and as you read through legislations approval, you’re probably asking yourself why are rules surrounding retirement accounts always changing. It is certainly a lot to digest as you navigate through the new laws The SECURE 2.0 Act has put into place and I hope this blog helps. Some questions that might come to mind are; How does this affect me? Do I need to make any changes? Is there something I should be taking advantage of?

Some Key takeaways:

Most financial professionals will agree The SECURE 2.0 Act’s biggest takeaways are the changes made to required minimum distribution rules, workplace retirement plans, and annuity options. There are also some major changes to 529 plans, student loan debt, and qualified charitable contributions, all of which are addressed and, in many ways, there are important new caveats to be aware of, whether you are nearing retirement or just entering the workforce.

Catch-up Contributions:

The changes for catch-up contributions take effect in 2024 and have several admonitions to be cognizant of. If you earn more than $145,000, all catch-up contributions for employees will need to be made to a Roth account, so you will lose the benefit of the additional pre-tax contribution which many participants have gotten used to. Individuals who are over the age of 50 are still capped at a $7,500 catch-up, however, workers who are 60-63 years of age can make a catch-up of up to $10,000. Congress also added some new changes for IRAs; the previous $1,000 catch-up will now be tied to inflation each year and this can potentially help lower your taxable income even further.

New Required Minimum Distribution rules:

Here is the fun part – RMDs (Required minimum distributions) The age to start taking distributions will be 73 in 2023 and in 2033 the new RMD age will be 75. The age you commence taking RMDs depends on your birth date:

  •  If your year of birth was before 1951, your RMDs have started, so there will not be changes for you
  • If you were born between 1/1/1951 and 12/31/1959, then your RMDs must start at age 73
  • If you were born in 1960 or later, then your RMDs will begin at age 75

 Your first RMD must be taken by April 1 of the year following the year you reached the age, but, if you wait until then, you will need to take two RMDs which could potentially push you into a higher tax bracket, thus paying more in taxes.

Beginning in 2023 the penalty for not distributing an RMD in time will be reduced from 50% to 25% of the amount failed to be taken from your retirement account.

A part of the new rules set by the federal government states that Roth accounts within employer plans will no longer require a required minimum distribution

Qualified Charitable Distributions:

A Qualified Charitable Distribution (QCD) is a direct transfer from an IRA to a qualified charity. To do this, you must be over the age of 70 ½ and the distribution will not be counted towards taxable income. The benefits of this go beyond donating to charity because you are able to not only satisfy an RMD but making this transfer to a charity, lowers your income. The new rules come with greater flexibility, you can now make a gift of up to $50,000 to a charitable remainder unitrust or a charitable gift annuity.

Startup Plan Tax Credit:

The federal government has taken some serious actions to greatly incentivize small business owners to offer a retirement plan. The new law covers 100% of administrative costs, up to an annual maximum of

$5,000 for the first three years. The new law also allows for small businesses to receive certain tax credits if they sponsor a defined contribution plan such as a 401(k) or a SIMPLE IRA.

Eligible employers can receive a credit which covers 100% of employer matches for the first two years. The credit drops each year before falling to 0% in the sixth year. The maximum credit is $1,000 per participating employee and this applies to employers with 50 or fewer employees, the benefits phases out for those small businesses with 51-100 employees.

Student Loan Debt:

Starting in 2024, congress has allowed businesses to contribute a match to their employees 401(k) based on the payments they make towards student loan debt. In other words, employees faced with student debt can still build up a retirement savings without making a direct contribution to the 401(k) plan.

529 Plan Changes:

An exciting new rule is being added to 529 Plans; after 15 years, account owners can rollover savings in a 529 plan into a Roth IRA. The caveats of this are the amount which can be directly transferred is subject to contribution limits. Another piece to this new provision states there is a lifetime limit of $35,000 which can be rollover over into a Roth IRA.

Pension-Linked Emergency Savings Account:

A rather unique provision to the Secure Act is the ability to add an emergency savings account to employer-sponsored plans. This plan would allow eligible employees to contribute up to $2,500 annually into a designated Roth account, invested into cash and cash equivalent assets. In addition, depending on the rules, contributions can receive an employer match. The first four withdrawals within a year would be penalty and tax free. This will help participants save for unexpected expenses which can serve as emergency savings.

When it’s all said and done you should consult any questions you have about this with your financial advisor. The new rules create opportunities for almost everyone, however, everyone’s situation is unique and each person has different goals within their financial plan.

Disclosure: Investment in mutual funds is subject to risk and loss of principal. There is no assurance or certainty that any investment strategy will be successful in meeting its objectives. Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact our office at 8391 Old Courthouse Rd. Ste. 203 Vienna, VA 22182 or (703) 356-4360 to obtain a prospectus, which should be read carefully before investing or sending money.

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  2. com Small Businesses and Secure 2.0P Exemptions and Tax Credits. By Paul Mulholland. JANUARY 19, 2023
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  4. com Secure Act 2.0 Act: Will it help you save for retirement. By Taylor Tepper. DECEMBER 01, 2022.