Your Quick Reference to Answer Questions Your Clients May Have:
All in one place
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act), passed in 2019, has new upgrades.
New and improved retirement policies through the SECURE 2.0 Act passed the House of Representatives this past Friday, December 23, and the bill now moves to President Joe Biden’s desk for signing.
I thought it would be helpful for you to have a handy resource to answer questions you will most likely receive from clients, as the SECURE 2.0 Act may impact their retirement and the retirement planning you do for them.
How has SECURE 2.0 changed Qualified Charitable Distributions?
Beginning in 2023, if you are 70 ½ or older, you can couple a Charitable Remainder Trust or gift annuity with a one-time up to $50,000 Qualified Charitable Deduction. While the gift isn’t deductible, This $50,000 will count towards RMDs and is adjusted for inflation. The distribution counts towards the $100,000 that could be gifted annually and will be adjusted for inflation as well.(1)
Did Increases for Supplemental Social Security make the final bill?
No, it did not. A proposal to raise the asset limits to $10,000 for individuals and $20,000 for couples while also indexing them for inflation did not make the final bill. (2)
Did the enhanced child credit make the final bill?
No, it did not. Advocates sought to renew the 2021 enhanced child credit to $3,600 per child under age 6 and $3,000 per child ages 6 through 17. Up to half of the more generous sums would be sent out in monthly payments to families — $300 per child under 6 and $250 per child ages 6 through 17.
In addition, supporters wanted to make the credit fully available to families with little to no income. The enhanced child credit did not make the final bill. (3)
Did the cannabis banking bill find its way into the final SECURE 2.0 Act?
No, it did not. The cannabis banking measure known as the SAFE Banking Act was left out. The banking bill aims to protect financial institutions that work with the marijuana industry.
How Does SECURE 2.0 change my Required Minimum Distributions (RMD) for my retirement accounts?
The current age to begin taking Required Minimum Distributions is 72. Under the SECURE 2.0 Act this will increase to 73, starting January 1, 2023, meaning your clients will have an additional year before they need to take mandatory withdrawal of their deferred savings from their retirement accounts. Then, beginning in 2033, the RMD start date will sneak up and start at age 75. (5)
Did penalties change if I failed to take my RMDs from my tax-deferred retirement accounts?
Starting in 2023, the penalty for failing to take RMDs will drop from 50% of the RMD amount not taken to 25%, plus the penalty will be reduced to 10% if the IRA owner withdraws the RMD amount previously not taken and submits a corrected tax return in a timely manner. (6)
Did automatic enrollment for 401(K) make the final bill?
Yes, it did. Beginning in 2025, employers launching 401(k) and 403(b) plans would be required to automatically enroll new employees in those plans at an initial amount of at least 3% unless the employee opts out. This amount will increase by 1%t each year until it reaches 10%. This provision will not impact existing 401(k) and 403(b) plans. (7)
Did the SECURE 2.0 ACT increase start-up tax credits for small 401(K) retirement plans?
For plans with up to 50 employees, the SECURE Act 2,0 increases the tax credit to 100% of eligible start-up costs plus provides an additional tax credit for five years of up to $1,000 per employee equal to the applicable percentage of eligible employer contributions to an eligible employer plan (not including a defined benefit plan). The SECURE 2.0 phases out this credit for employers with 51-100 employees. (8)
How are student loans affected?
The SECURE 2.0 Act includes a provision that would let employers count employees’ student loan payments toward their retirement match. Congress designed this to help college grads enhance their retirement saving rather than choosing between saving in the 401(K) or paying their loan. Now they can do both. (8)
Have “catch-up” provisions for retirement plans changed?
Currently, you can put an extra $6,500 annually in your 401(k) once you reach age 50. The Secure 2.0 would increase the limit to $10,000 starting in 2025 for ages 60 to 63, and SECURE 2.0 index these enhanced catch-up contributions for inflation. Another point to note is that for workers earning $145,000 or more, all catch-up contributions will be after tax, meaning they will be subject to Roth retirement plan treatment. (6)
How does penalty-free emergency withdrawals for retirement plan participants work?
Secure 2.0 would allow retirement plan participants to withdraw up to $1,000 from their retirement savings per calendar year to cover emergency expenses without penalty.
However, the borrower would have to replace those funds within three years before making another similar withdrawal. Penalty-free withdrawals are also allowed for small amounts for individuals who need the funds in cases of domestic abuse or terminal illness. (5)
Are part-time workers Increasing their access to retirement plans under SECURE 2.0?
The SECURE Act 2.0 will allow part-time workers who work between 500 and 999 hours for two consecutive years to be eligible for their company’s 401(k). (6)
Did the SECURE 2.0 ACT change the required minimum distribution rules for Roth 401(k)s?
Currently, Roth 401(K)s require RMDs during the retirement plan participant’s life. The Require Minimum Distribution provision will change starting in 2024 as the SECURE 2.0 Act eliminates these pre-death distribution requirements.
What is the emergency savings account deferrals?
The SECURE 2.0 Act allows non-highly compensated employees to defer up to the lesser of 3% of compensation, or $2,500 post-tax, to an emergency savings account. (5)
What Changed with my 529 Plan?
Beginning January 1, 2024, if you have funds left over in a 529 account, you will be able to roll over up to $35,000 into a Roth IRA account without penalties. This only applies to 529 accounts opened at least 15 years ago, and you still must adhere to annual IRA contribution limits. (9)
Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information. This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax, or investment advice, an investment recommendation, or a substitute for legal or tax counsel. Any investment products, services, and examples named herein are hypothetical and for illustrative purposes only and should not be considered an offer to buy or sell or an investment recommendation for any specific security, strategy, or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Dunham does not provide legal or tax advice. Federal and state laws and regulations are complex and subject to change, which can materially impact your results. Dunham cannot guarantee that such information is accurate, complete or timely; and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. All financial decisions and investments involve risk, including possible loss of principal.
We encourage you to seek from qualified professionals regarding all, personal finance issues.
Dunham & Associates Investment Counsel, Inc. is a registered Investment Adviser and Broker/Dealer. Member FINRA / SIPC. Advisory services and securities are offered through Dunham & Associates Investment Counsel, Inc. Trust services offered through Dunham Trust Company, an affiliated Nevada Trust Company.Subscribe to the Dunham Blog