The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was originally passed in 2019 to modernize retirement savings rules and expand access to retirement plans. One of its most significant changes was eliminating the stretch IRA, which previously allowed non-spouse beneficiaries to take distributions over their lifetime. Instead, it implemented a 10-year rule requiring most non-spouse heirs to withdraw the full balance of an inherited IRA within ten years, significantly impacting estate planning strategies.
Building on this foundation, the SECURE Act 2.0, signed into law in December 2022, introduced further adjustments to retirement planning. These changes aim to enhance savings opportunities, increase flexibility for retirees, and modify the rules governing inherited retirement accounts. Whether you’re planning for your own financial future or considering the legacy you will leave to your heirs, understanding these updates is crucial. Let’s explore the key provisions of SECURE Act 2.0 and their implications for your estate plan.
1. Changes to Required Minimum Distributions (RMDs)
One of the most notable changes in SECURE Act 2.0 is the adjustment to Required Minimum Distributions (RMDs):
- The age at which retirees must start taking RMDs from traditional IRAs and 401(k)s increased from 72 to 73 in 2023 and will rise to 75 by 2033.
- This change provides additional time for account holders to let their retirement savings grow tax-deferred.
Estate Planning Implications:
- A longer deferral period allows for more strategic Roth conversions to reduce tax burdens for heirs.
- Beneficiaries who inherit traditional IRAs will still face the 10-year withdrawal rule from the original SECURE Act of 2019, requiring them to empty the account within a decade of the original owner’s passing.
2. Expansion of Roth Accounts and Elimination of RMDs for Roth 401(k)s
SECURE Act 2.0 eliminates RMDs for employer-sponsored Roth 401(k) accounts starting in 2024. Previously, retirees had to roll these funds into a Roth IRA to avoid mandatory withdrawals.
Estate Planning Implications:
- Roth IRAs remain a valuable tool for legacy planning since they grow tax-free, and heirs can withdraw funds without immediate tax consequences.
- Eliminating RMDs for Roth 401(k)s allows account holders to pass on larger balances to their heirs.
3. Increased Catch-Up Contributions for Retirement Accounts
Starting in 2025, individuals aged 60-63 will be allowed to make larger catch-up contributions to their retirement accounts, up to $10,000 annually (indexed for inflation).
Estate Planning Implications:
- This allows individuals to bolster their retirement savings in their final working years, potentially leaving a larger nest egg for heirs.
- If high earners ($145,000+ per year) make catch-up contributions, these must be directed into Roth accounts, meaning taxes are paid upfront but withdrawals (including those by heirs) are tax-free.
4. Changes to Qualified Charitable Distributions (QCDs)
The Act increases Qualified Charitable Distribution (QCD) limits and introduces the ability to make a one-time $50,000 charitable gift to a charitable remainder trust or a charitable gift annuity.
Estate Planning Implications:
- QCDs remain a valuable tool for reducing taxable estate size while supporting philanthropic causes.
- Charitable remainder trusts provide income to beneficiaries before eventually distributing the remainder to charity, offering a structured approach to legacy giving.
5. 529 Plan-to-Roth IRA Rollovers
A major new benefit allows unused 529 education savings plan funds to be rolled into a Roth IRA for the beneficiary, subject to a lifetime limit of $35,000 and other restrictions.
Estate Planning Implications:
- This change allows families to pass down tax-free growth opportunities if 529 funds are not fully used for education.
- It offers another vehicle for tax-efficient wealth transfer to younger generations.
How Kinney Law Office Can Help
Navigating the SECURE Act 2.0 and its implications for your estate plan requires careful consideration and strategic planning. Kinney Law Office helps clients ensure their estate plans align with these new regulations by:
- Evaluating and optimizing retirement account distributions to minimize tax burdens.
- Structuring estate plans to account for the 10-year rule on inherited IRAs.
- Advising on Roth conversions and tax-efficient wealth transfer strategies.
- Assisting with charitable giving plans, including Qualified Charitable Distributions.
- Reviewing beneficiary designations to ensure compliance with new rules and maximize benefits for heirs.
What Should You Do Now?
Given these changes, here are some steps you may want to take:
- Review your retirement accounts – Consider Roth conversions, updated RMD strategies, and new contribution limits.
- Reassess beneficiary designations – Ensure your heirs are positioned to benefit efficiently from inherited accounts.
- Consider charitable giving options – If philanthropy is part of your legacy, explore QCDs and charitable remainder trusts.
- Meet with an estate planning professional – With evolving tax rules, professional guidance ensures your estate plan aligns with your goals.
Final Thoughts
The SECURE Act 2.0 presents both challenges and opportunities for estate and legacy planning. While some provisions create new tax efficiencies, others reinforce the need for careful strategy in passing on retirement assets. By understanding these changes and adjusting your plan accordingly, you can better protect your legacy and ensure your wishes are carried out efficiently.
If you’re unsure how SECURE Act 2.0 impacts your estate plan, Kinney Law Office can help. Schedule a consultation today to discuss your specific situation.
