In the words of Jeff Levine, Kitces.com's lead financial planning nerd and Buckingham Wealth Partners' chief planning officer, the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act of 2022 is nothing short of a behemoth.
In fact, according to Levine's analysis, there are well in excess of 100 distinct changes made by the law that will have a direct impact on the work of financial planners and retirement advisors.
Speaking this week during the latest Kitces.com webinar, Levine suggested that advisors stand little chance of fully digesting and memorizing every little change made by the landmark law. Instead, he urged advisory professionals to analyze their own books of business and attempt to focus on those provisions that are likely to have the biggest impact on their particular stable of clients.
For example, those advisors with a lot of first-responder clients have a unique stack of changes to consider, while those with clients closely focused on legacy planning and charitable giving have another set to study.
That said, Levine used the webinar presentation to highlight what he considers to be the most widely impactful provisions of Secure 2.0 — the ones that can be expected to influence planning decisions for most clients.
While he believes no single change in the law will alone upend a given client's financial plan, as was the case with the original Secure Act's elimination of the stretch IRA, the sheer number and scope of changes demand a refreshed perspective.
Required Minimum Distribution Changes
As Levine pointed out, the age at which clients must begin taking required minimum distributions from their individual retirement accounts has been pushed back by a meaningful degree, with additional future extensions already programmed into the law.
"This change is one of the headline changes, in my view, because it impacts nearly every single client," Levine said. "Unfortunately, for those who turned 72 or older last year, there is no change, but for those who will turn 72 this year through 2033, they are going to be able to delay RMDs until they reach 73."
Starting in 2033, the RMD age is pushed back again, from 73 to 75, and no additional legislation or regulation is needed for this second extension to take effect.
Levine suggested this 10-year delay in pushing the RMD age back to 75 ties back to the way the federal government accounts for revenues and expenses in the budgeting process. If not for this quirk, he said, it's likely that Congress would have just pushed the RMD date out to 75 in one fell swoop.
"The basic rule of thumb for financial planners is to understand that, if your client was born between 1951 and 1959, they will have an RMD age of 73," Levine said. "If the client was born in 1960 or later, their RMD age will be 75."
The Planning Impact of Later RMDs May be Mixed
Levine said the planning community tends to view extensions to the RMD age as being a universally positive thing.
"That is true in the sense that it adds flexibility, but this extension also has the potential to exacerbate tax issues," Levine warned. "Any time an IRA owner waits to make distributions, that effectively means they will be squeezing future income into fewer years, and that can raise their tax bill."
In Levine's experience, most clients don't appreciate this, and they often fail to understand that they are setting themselves up to have a smaller window for drawing income.
"The good news for advisors is that you can distinguish yourself by delivering advanced planning here to really help people make the most of their tax-deferred growth while also avoiding tax headaches," Levine said. "Roth conversions are likely going to be a key part of this discussion."
More Flexibility for Employer-Based Roth Accounts
Levine said another RMD-related change that is getting less attention from the planning community pertains to Roth-style accounts offered by employers, such as Roth 401(k)s or Roth 403(b)s. Beginning in 2024, these accounts will no longer be subject to RMDs.
Levine warned advisory professionals that this may seem like a minor or peripheral change, but it will actually have a big impact on things like rollover decisions.
