Will the Secure Act 2.0 affect your retirement planning?

You may want to review your retirement planning strategies because of key provisions in the Secure Act 2.0, which was signed into law in December 2022.

Currently effective

You may want to consider potential opportunities to adjust your retirement savings and distribution plans and charitable giving strategies.

1. Should you wait an extra year to take distributions from your retirement accounts?

The required minimum distribution (RMD) age has increased to age 73 for individuals who turn age 72 in 2023. This means they do not have an RMD due in 2023. Individuals who turned age 72 in 2022 or earlier must continue taking their RMDs as scheduled.

2. Does making qualified charitable distributions (QCDs) make sense?

QCDs are available to those age 70½ or older and have a Traditional IRA and/or Traditional Inherited IRA. Beginning in 2023, you may distribute a one-time $50,000 QCD paid directly from your IRA to certain split-interest entities that qualify under the new rule. The $50,000 is part of the $100,000 QCD annual limit. The rules governing what split-interest entities are allowed to receive the one-time $50,000 amount are complex, so consult a planning or philanthropic specialist who can provide more information.

3. Should you direct employer matching contributions to your before-tax qualified retirement plan (QRP) account or designated Roth account?

Your employer may now offer you the option of receiving vested matching contributions in a QRP designated Roth account instead of a QRP before-tax salary deferral account. Contributions to a designated Roth account are made with after-tax dollars and qualified distributions are tax-free.^[1]

Starting January 1, 2024

1. Should you delay taking distributions from a designated Roth account?

Currently, if you have a Roth IRA, you are not required to take RMDs while you’re alive, but you do have to take them from a designated Roth account. Starting in 2024, you will no longer have to take RMDs from either type of Roth account.

2. Would a 529 plan designated beneficiary get a head start on saving for retirement by transferring their unused balance to a Roth IRA?

Beginning in 2024, a 529 designated beneficiary may make a rollover contribution from their 529 to their Roth IRA if certain conditions are met. Distributions are subject to annual Roth contribution limits, the 529 beneficiary must have equivalent earned compensation, and the aggregate distributions are limited to a $35,000 lifetime amount.

To qualify, the 529 account must have been in existence for at least 15 years and the amount rolled over to the Roth IRA may not exceed the aggregate amount contributed (plus earnings) before the five-year period ending on the transfer date.

3.Will you get credit for your student loan payments?

If you are paying off qualified student loans, your employer will have the option to match your loan payments with contributions to a retirement account, offering you an additional incentive to save for retirement. For this purpose, matching contributions can be made into a 401(k), 403(b), governmental 457(b), or SIMPLE IRA plan.

4. Should you take advantage of employer-sponsored emergency savings accounts linked to individual account plans?

Your company will have the option to automatically sign you up for an emergency savings account for up to 3% of your salary or up to $2,500, indexed for inflation, to your retirement plan if you earn less than a certain amount of money. These contributions would be made on an after-tax basis with the potential for an employee match. If your company participates, you will be allowed at least one withdrawal per month and the first four withdrawals in a year cannot be subject to any plan fees.

Starting January 1, 2025

Should you take advantage of higher retirement catch-up contributions?

Currently, if you’re age 50 or older and want to increase your tax-advantaged retirement savings, you can make an additional $7,500 contribution annually to your QRP and $3,500 to a SIMPLE IRA.

Beginning in 2025, if you’re aged 60 – 63, you will be able to increase that amount to the greater of $10,000, indexed for inflation, ($5,000, indexed for inflation, for a SIMPLE IRA) or 150% of your catch-up contributions for the year.

The increased catch-up amounts will be adjusted for inflation beginning in 2025. If your wages exceed $145,000, indexed for inflation, in the preceding calendar year, you will be required to make your catch-up contributions to a designated Roth account.

Wells Fargo & Company and its affiliates do not provide legal or tax advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.

This article was written by/for Wells Fargo Advisors and provided courtesy of Katie C. Phifer, CERTIFIED FINANCIAL PLANNER™, RICP® and First Vice President-Investment Officer in Beaufort, SC at 843-982-1506.

^[1] Distributions are qualified when a designated Roth account has been funded for more than five years and the employee is age 59½, or disabled, or taken by their beneficiaries after the employee’s death.