Broker Check
4 Major Changes to Retirement and Tax Planning Due to the SECURE 2.0 Act

4 Major Changes to Retirement and Tax Planning Due to the SECURE 2.0 Act

February 09, 2023

In December 2022, Congress passed a whopper of a bill — the SECURE 2.0 Act — designed to make it easier to contribute to and access retirement funds.

In a previous post, we provided an overview of these changes. Below, we’re diving deeper into four SECURE 2.0 Act provisions.


●      The RMD age increases from 72 to 73 starting in 2023.

●      529 plans can now, under certain conditions, roll over into Roth IRA accounts.

●      SIMPLE IRAs and SEP-IRAs now have the option to accept Roth contributions.

●      All catch up contributions made by individuals aged 50 and over must now be made to Roth accounts.

SECURE Act 2.0 increases required minimum distributions to age 73

Many types of retirement plans, like traditional IRAs and 401(k) plans, require a minimum annual distribution (known as required minimum distribution, or RMD) if you are age 72 or older. Your RMD from these plans is considered taxable income.

Originally, the RMD kicked in at age 72.

Now, with the passing of the SECURE 2.0 Act, this age threshold increases to 73 starting in 2023. If you have already turned 72, you must continue taking your distributions. But if you are turning 72 this year, you may want to reconsider your strategy.

A decade from now — beginning on January 1, 2033 — the RMD age will increase again, this time to 75 years old.

529 plans can roll over into Roth IRA accounts

The new 529 to Roth rollover provision is a particularly exciting change.

A 529 plan is an after-tax investment account that can be used for qualified education expenses. And it’s not just college that you can use a 529 plan for — funds can also pay for K - 12 tuition and more. Before the passing of the SECURE 2.0 Act, funds from a 529 plan used for noneducational expenses would be subject to penalties.

However, with the new provision going into effect in 2024, funds from a 529 account can be rolled into a Roth IRA under the same name as the 529 beneficiary, solving the potential issue of what to do with an overfunded 529 account.

There, of course, are certain conditions.

To begin, only  529 accounts that have been open for at least 15 years qualify. There’s a lifetime transfer limitation of $35,000. Rollovers are still subject to Roth IRA annual contribution limits. The income limitation to be able to contribute to a Roth IRA, however, is removed in this roll over scenario. The beneficiary must also be earning income at least equal to the amount transferred from the 529 to the Roth IRA each year.

SIMPLE IRAs and SEP-IRAs now offer the option for Roth contributions

Currently, SIMPLE IRAs and SEP-IRAs — two favorite retirement options among small businesses — only allow for tax-deferred contributions by employees. With the SECURE 2.0 Act, however, both plans would allow the option for Roth contributions by employees. This option is not automatic; each plan would need to decide whether to offer it to employees.

This benefits those employees who have not yet reached their highest earning potential. By making Roth contributions now — while their tax obligations are lower — these employees can then enjoy tax-free growth and withdrawals from these accounts upon retirement.

All catch up contributions will now be subject to Roth tax treatment

Starting in 2024, any catch-up contributions made by high-earning individuals must be made to a Roth account.

Whether you’re an employee or business owner, this change will have massive impacts.

Currently, catch-up contributions — allowed for those aged 50 and older — can be either Roth or pre-tax, depending on your retirement plan. This new provision changes all catch-up contributions to Roth for those earning more than $145,000 in wages.

Typically, individuals making catch-up contributions are in their highest earning period. Thus, this new provision is a move by the IRS to generate more tax revenue upfront.

The IRS has issued an update to the on the catch contributions. IRS says it will provide a two-year “administrative transition period” — until Jan. 1, 2026 — before plans must comply with the new law. The effect of this delay is that until 2026, no employees will be required to make catch-up contributions on a Roth basis, and plans that don’t already offer Roth contributions will not need to begin offering them.

The Act also stipulates that if the Roth option isn’t available, then no catch-up contributions can be made by anyone in the plan at all. This could create complexities (and headaches) for businesses and plan providers in order to meet this new regulation, since many smaller 401(k) plans don’t currently offer Roth options.

Update your tax and retirement strategy to comply with the SECURE 2.0 Act changes

Ensure you’re positioned to take advantage of these new provisions by working with a Landmark Financial advisor to review your current tax and retirement strategy.