Week of 1/4/2023

Happy New Year! We hope the holidays have been good to you and your loved ones. We have previously mentioned a new SECURE Act and provisions of that legislation were signed into law by President Biden on December 29, 2022 as part of the Consolidated Appropriations Act, 2023. Broadly, SECURE 2.0 is intended to make retirement saving more straightforward and accessible to a wider range of people. As such, it encompasses many aspects of financial planning and retirement saving. With time, as the new law is interpreted and applied, nuances will become clearer. Until then, individuals will have to interpret the law’s effects based on its language and any guidance the IRS issues. SECURE 2.0 includes provisions affecting the rules for qualified retirement plans (401(k), 403(b), etc.) and their administration. We are addressing here only key provisions pertaining to individuals and their accounts, rather than plan sponsors and administrators. The bill is more than 4,000 pages(!), so we intend this information to be a high-level summary addressing the items most likely to affect you.

Key Provisions of SECURE 2.0 Relating to Individuals SECURE 2.0 includes many provisions outside the scope of this summary that could be deemed relevant for certain individuals, however, so it’s important to confer with a tax professional before executing any strategy based on this new legislation. Note as well that the bill has a wide range of effective dates for the various provisions. Delays the age of RMDs from age 72 to 73, with an eventual increase to age 75 by 2033 (More important, individuals who turned 72 in 2022 should not be affected by this new rule, and the imposition of the new RMD age does not seem to afford the individual the option of delaying their first RMD beyond April 1, 2023.) Allows employers to provide matching contributions to an employer sponsored retirement plan equal to an employee’s qualified student loan payments. Authorizes taxpayers to create SIMPLE Roth IRAs and SEP Roth IRAs. Permits qualified charitable distributions (QCDs) from an IRA to be made to a split-interest entity (such as a charitable remainder trust or charitable gift annuity) up to a lifetime limit of $50,000. Indexes IRA catch-up contributions for inflation year-over-year. Eliminates RMDs for Roth accounts in employer sponsored plans. Indexes QCDs (currently limited to $100,000 per individual) for inflation year-over-year. Permits unused funds remaining in 529 college savings plans to be rolled into Roth IRAs (subject to restrictions, including a lifetime rollover limit of $35,000 and a 15-year minimum on account age). Introduces new post-death beneficiary withdrawal options for surviving spouses of retirement plan owners by permitting the surviving spouse to elect to be treated as if they were the deceased spouse. Adds numerous exceptions to the 10 percent penalty for early withdrawal from a retirement account (exceptions include withdrawals for domestic violence victims and for qualified long-term care expenses), with each carrying varying limits on withdrawal timing and amount. Eases limitations on the use of a qualified longevity annuity contract (QLAC) by removing the 25 percent account balance rule and increasing the maximum contribution amount to $200,000. Makes 529 ABLE accounts accessible to more blind and disabled individuals by raising the age from which disability must be present from 26 years old to 46 years old. Many of the provisions that make up SECURE 2.0 are designed to allow individuals more time for tax-deferred saving and savings growth before requiring distributions and to incentivize and promote retirement saving. We welcome these changes.

Q: What aspect of SECURE 2.0 do you think is most interesting? A: Probably the provision allowing people to convert money (up to certain limits) in 529 accounts to a Roth IRA. Some parents are afraid of overcontributing to college savings plans. Knowing that you can save and avoid a later tax penalty for doing too good a job of it is nice recognition that planning for college is challenging.

‌ ‌ ‌ Advisory Services offered through Lowry Financial Advisors, Inc., a Registered Investment Adviser. Securities and additional advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Advisory services offered through Lowry Financial Advisors, Inc, are separate and unrelated to Commonwealth. Lowry Financial Advisors, Inc. is located at 12921 SW 1st Rd, Suite 215, Tioga, FL 32669. 352-333-7990 Lowry Financial Advisors is the only advisory firm that helps its clients reach their goals through The Achieving Simplicity® Experience™, providing clarity and confidence in their personal and financial lives.