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  • Charlotte Jones

A Primer on Secure Act 2.0

Why would you take the time to learn anything about the Secure Act 2.0 that was passed into law on 12/29/22? Because it contains so many new provisions that improve retirement-savings opportunities that it’s likely to have an impact on you.


Lucky for you, Northstar advisors have been diving deep into this topic so we can help our clients adjust their retirement savings strategy to take advantage of the new opportunities that the Secure Act 2.0 made possible. What follows is a summary of the things we think are most likely to affect our clients, which should give you advance warning that we may broach these with you in future discussions.


Meet Secure Act 2.0

The goal of the Secure Act 2.0 is to improve retirement savings options. The Act contains 92 provisions that are intended to promote retirement saving so that more Americans are ready for retirement.


Read on for the things we expect to impact our clients and may mention to you in a future discussion.


1. If you haven’t started taking RMDs from your IRA, you can wait a little longer

Normally we would notify you when your 72nd birthday is approaching that you’ll be required to take a distribution from your IRA every year going forward. Now we get to wait a year, because RMDs won’t begin until age 73. And in 2033 that gets pushed back to age 75.


2. Inherited IRAs may be a less attractive options for your heirs

When a beneficiary inherits an IRA it’s not without strings attached, especially if the beneficiary is not the decedent’s spouse. Thanks to the original Secure Act, non-spouse beneficiaries are required to take RMDs from the Inherited IRA within 10 years of receiving it, regardless of their age. Secure Act 2.0 held firm on these new requirements and clarified those rules – so it appears these rules are here to stay.


These new rules for Inherited IRAs have changed how Northstar advisors think about helping our clients with financial planning because it means that passing an IRA to a non-spouse beneficiary could saddle that beneficiary with a hefty tax bill. As a result, we now recommend that clients with a significant portion of their retirement funds in an IRA consider converting some of it into a Roth. Doing this requires that we have a strong handle on your tax situation and your financial plan goals, and we’ve already established Roth conversion schedules for multiple clients to accomplish this.


For those clients who inherited an IRA from someone who was not their spouse we are also finding ways to optimize the RMD schedule to minimize their tax liability. And we’re providing a lot of education on what’s required of anyone who has an Inherited IRA, as the rules continue to be clarified.


3. More employer retirement plans will be offering a Roth option that’s improved for all

We’re not the only ones who have learned to love the Roth – and demand for a Roth option within retirement savings plans has not gone unheard. Companies who offer 401ks have been offering a Roth element since 2006, and now other retirement savings plans can do the same. Secure Act 2.0 enables a Roth component within a SEP IRA and Simple IRA. If you work for a company that offers one of these plan types we’ll be reminding you to check your plan, and if your employer has added a Roth element, we may recommend a Roth contribution that supports your financial plan and tax situation.


If you do take advantage of the Roth component of your employer’s plan, it’s even more flexible now that participants are not required to take RMDs.


4. More ways to take money from your IRA without penalty

People younger than age 59½ have to pay an extra penalty if they take money out of their IRA (in addition to the tax they’ll pay), unless one of the approved exceptions applies to them. Secure Act 2.0 has added more exception situations that would waive the penalty.

  • People in a qualified disaster area

  • Terminal illness distributions. The definition of a “terminal illness” has also been expanded.

  • Victims of domestic abuse

  • Emergency withdrawal situations (up to $1,000/calendar year). This is basically the hardship exception that people have advocated for…but the amount allowed is unfortunately pretty low.

  • Qualified long term care exception: You can take a distribution to pay your annual Long Term Care insurance premiums.

5. Possible improvements to your employer-sponsored retirement savings plan

We aren’t being nosy if we ask you about your employer-sponsored plan, we are scanning for ways that you can take advantage of some of the following enhancements your employer may soon offer.

  • Employers who offer a Simple IRA can now make higher matching contributions.

  • If you contribute to a Simple IRA you can now contribute more – the contribution limit has been raised for employers that qualify.

  • Employees who are contributing to a 403(b) may see more options for investments within the plan and more generous policies around taking money out for hardship distributions.

  • Employers can help pay off student loans by matching the payments an employee is making. It is up to the employer whether to offer this benefit.

  • Employers can offer an Emergency Savings component within their retirement savings plan that allows employees to contribute pre-tax funds to an emergency savings account that can be more easily drawn from in the case of emergency.

What DIDN’T Secure Act 2.0 do?

There was a lot of speculation that Secure Act 2.0 would end Back-door Roths …but it turns out that the demise of this useful tax-planning tool was greatly overestimated. In fact, The Act introduced no restrictions to Roth IRAs, which seems to indicate that Congress loves the Roth too, and is likely to continue to make it more attractive to contribute to one.


I’m venturing into the realm of opinion on this one: They sure didn’t simplify or make it easier to stay on top of all of the things that taxpayers can use to save for retirement! I’m all for offering taxpayers more benefits…but thanks to Secure Act 2.0 there are even more options to understand and sift through than before. That’s why your Northstar advisors are even more committed to staying on top of these things for you and will make sure you’re aware of the opportunities that fit your situation.

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