Page 11 - Investment Advisor February/March 2023

Ed Slott: Pay Attention to Secure 2.0 Dates

he effective dates for the Setting
TEvery Community Up for
Retirement Enhancement (Secure) 2.0
Act of 2022, are “all over the place,” Ed
Slott warns, so advisors must pay careful
attention. For instance, “almost every
headline on this legislation begins by
touting the auto-enrollment provision
to encourage more people to participate
in company retirement plans,” Slott, a
CPA, IRA expert and president of Ed
Slott & Co., in early January. “That’s
fine, but this provision would not be
effective until 2025 (and it only applies Special needs trusts (applicable drawals that are transferred directly to
to new plans).” multi-beneficiary trusts, or AMBTs): A charity, count toward a retiree’s RMD
The increase in the required minimum qualified charity can now be the remain- and are not taxable — will receive annu-
distribution age to 75 will be phased in der beneficiary for this type of trust. al inflation increases starting in 2024.
over a decade, Slott points out. The RMD Qualified longevity annuity con- “We don’t know yet what the infla-
age is now 73 under the new law, “but tracts (QLACs): QLACs are a type of tion factor will be for 2024,” Slott said.
only for those who will be 72 this year or annuity that begins to pay out at an “These cost-of living adjustments are
later,” Slott explained. “Anyone already advanced age and can be purchased with usually announced in October or later
taking RMDs must continue.” retirement plan assets. Under Secure 2.0, in the year.” For example, if the inflation
The best way to understand this provi- QLAC purchases are no longer limited factor is 5%, then the QCD limit would
sion, which has caused some head scratch- to 25% of assets, and the purchase limit increase to $105,000, Slott explained.
ing, according to Slott, is to: “Use age 72 if is now $200,000, which will be adjusted Student loan repayments: These
born in 1950 or earlier (before 2020 the for inflation. would qualify for matching 401(k) con-
age was 70 ½); use age 73 if born 1951- IRA catch-up limit: The extra con- tributions beginning in 2024. “This
1959; and use age 75 if born 1960 or later.” tributions allowed for those age 50 or could be a big incentive benefit to offer
Reduced RMD penalty: “I’m a bit older will be increased annually for to employees,” Slott opined.
cynical on this one,” Slott relayed. Before inflation starting in 2024. Emergency money, without penal-
Secure 2.0, the penalty for not taking an Catch-up contributions: These “must ties: Secure 2.0 adds six new provisions
RMD “was a draconian 50%,” Slott said. go to Roth 401(k)s if wages from the com- to help workers save for emergencies,
“But beginning in 2023, the 50% pen- pany exceed $145,000 the previous year” either by creating new savings options
alty is reduced to 25%, and then to 10% if beginning in 2024, Slott said. “Congress or removing the 10% withdrawal penalty
timely corrected by making up the missed wants more retirement funds going into in certain cases. But Slott warns that too
RMD. ‘Timely’ means corrected generally Roth-type accounts because they raise tax many exceptions might cost savers in
in 2 years (unless the penalty is assessed revenue; that’s also great for clients who the end.
earlier). However, IRS penalty waivers on want tax-free income in retirement.” While these emergencies are “all
Form 5329 can still be requested.” 529 plan funds: Unused assets in critical issues, withdrawing early from
SIMPLE and SEP Roth IRAs: these college savings accounts can be a retirement account should be a last
Secure 2.0 allows Roth options for these rolled over to a Roth IRA starting in resort, and now the Tax Code has more
retirement accounts, effective immedi- 2024. There is a $35,000 limit, and the penalty-free access than ever,” accord-
ately. “But it’s unlikely that custodians 529 account must be at least 15 years old. ing to Slott. “It’s good that people in
are ready to open these accounts yet,” No RMDs for Roth employer plans: need should not have to pay a pen-
Slott said. “Similarly, plans can now This includes Roth 401(k)s. alty to access their retirement money,
allow employees to elect Roth employer Qualified charitable distribution but all these exceptions may make it
contributions, but recordkeepers likely (QCD) limit: The annual $100,000 limit too easy, leaving people short when it
aren’t ready for this yet.” on QCDs — retirement account with- comes to retirement.”

FEBRUARY/MARCH 2023 INVESTMENT ADVISOR 9