Skip to content

Advisor Perspective

Advisor Perspective

Navigating Retirement Planning with Secure Act 2.0

Will Alexander

Advisor, CFP®, J.D.
Will anticipates clients’ complex needs proactively and responds to them quickly, helping them preserve and grow assets with thoughtful, custom solutions. He’s passionate about empowering individuals and families to fulfill their goals and dreams and appreciates the opportunity to share in those experiences.

Read Will's Bio →

On the last Friday of 2022, December 30th, the SECURE Act 2.0 was signed into law. The bill, which spent most of the year in a holding pattern of sorts, had overwhelming bipartisan support. Much like its predecessor, the SECURE Act that was passed in 2019, the changes are going to have broad implications on the way people both contribute into and distribute from their retirement accounts. The law enacted a multitude of both large and small changes that will be applicable to a varying portion of the population. Below are some of the more significant items that are likely to have an impact.

Changes that are effective in 2023

  • The Required Minimum Distribution (RMD) age has once again been pushed back. For those born between 1951 and 1959, distributions must begin at age 73. This will be an immediate effect for those born in 1951 who were set to be required to draw from their IRA this year. They can now delay for another year. For those born after 1959, the starting age has been delayed until age 75 (effectively beginning in 2033).
  • For the self-employed, small business owners, and sole proprietors, there will be an option to make plan contributions to Roth versions of SIMPLE and SEP IRAs. While this change is effective as of January 1st, it may take some time for brokerage firms and the IRS to get the paperwork and procedures in place for these account types to be opened.
  • For those individuals who may have missed or failed to fully complete their Required Minimum Distribution, the egregious penalty of 50% that was applied to the shortfall has been reduced to 25%. Additionally, a further reduction in the penalty to 10% may apply if the taxpayer is able to correct a shortfall in a timely manner.

Changes that are effective in 2024

  • Employer contributions to company 401(k) or 403(b) plans can now be made to designated Roth accounts. It is important to note that these contributions would be treated as wages to the employee recipient. As a result, employers would still receive the income tax deduction for the contribution and the employee would be recognizing the income in the year the contribution is received as opposed to the year it is distributed.
  • Individuals who are age 50 or older and earn more than $145,000 in wages will be required to make their eligible catch-up contributions to their 401k/403b/457b as Roth contributions. There are two issues that may arise from the application of this new rule:
    • The wage limitation is backwards looking based on the prior year’s wages of your current employer. Therefore, a change in employer would result in preclusion from the wage limitation for that year and possibly the following year as well.
    • If the employer plan does not have an option to make Roth contributions and any employee meets the criteria to be required to make Roth catch-up contributions, then no employee is allowed to make any catch-up contributions.
  • On a related note, Roth amounts in employer plans will no longer be subject to required minimum distributions for the original account owner. They will now follow the same distribution rules as their Roth IRA counterpart.
  • A few items will now be indexed to increase with inflation, including:
    • Qualified Charitable Distributions, which are currently capped at $100,000, will begin to increase in 2024.
    • IRA Catch-Up contribution limit, currently $1,000, will adjust with inflation in increments of $100.
  • A new option is available to the surviving spouse for the distribution requirements of inherited retirement accounts. The surviving spouse can now elect to be treated as the deceased spouse when determining the distribution amount. At first glance, this would be best used for cases where the deceased spouse was younger than the surviving spouse as this would further delay and reduce distributions.

It is also important to note that there are a few key provisions that were previously being discussed in Congress that are NOT included in the new legislation.

  • Limitations of the use of the back-door Roth contribution
  • New limitations on individuals who can complete Roth conversions, whether by income amount or account balance
  • Implementation of required distributions based on balances in certain accounts above a specific dollar amount
  • Preclusion of participation in certain alternative investment options within retirement accounts

Final Thoughts

While the changes made by the new law have mostly been beneficial for both those saving for retirement and those now in retirement, it should be added that nothing is included to simplify the rules of retirement accounts and the complexity of planning for retirement and maximizing the benefits of IRAs.  Please contact your JMG advisor with any questions that you might have. We invite you to share this article with others who may also find it helpful.

Important Disclosure

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by JMG Financial Group Ltd. (“JMG”), or any non-investment related content, made reference to directly or indirectly in this writing will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this writing serves as the receipt of, or as a substitute for, personalized investment advice from JMG. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. JMG is neither a law firm, nor a certified public accounting firm, and no portion of the content provided in this writing should be construed as legal or accounting advice. A copy of JMG’s current written disclosure Brochure discussing our advisory services and fees is available upon request. If you are a JMG client, please remember to contact JMG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. JMG shall continue to rely on the accuracy of information that you have provided.

To the extent provided in this writing, historical performance results for investment indices and/or categories have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices. Indices are not available for direct investment.