Retirement and Tax Benefits Under The SECURE 2.0 ACT

We wanted to help you navigate the Retirement and Tax Benefits under the SECURE 2.0 ACT and give you everything you need to know regarding the topic.

When did these changes occur?

This act was signed into law on December 29th, 2022 and aims to improve Americans’ retirement readiness and grow taxpayers’ savings.

The SECURE 2.0 ACT has some great tips for those just starting out to help you build generational wealth.

One of the fundamental changes is the conversion of a 529 Plan to a ROTH. A 529 Plan is a savings plan earmarked for education, and under the SECURE act, you can now roll up to $35,000 into a ROTH IRA, setting your beneficiary off to an excellent start for their retirement nest egg.

Another benefit for those just starting is the Saver’s credit. Lower-income workers receive a non-refundable credit when they save inside a 401(k) or IRA. However, beginning in 2027, the government will swap that refund for a matching contribution to a retirement plan. This could mean up to $2,000 of additional money deposited into your retirement plan tax-free.

Starting in 2024, employer 401(k), 403(b), and governmental 457(b) plans are permitted to match certain student loan payments as if they were retirement plan contributions. This can help those newly joining the workforce pay down their student debt.

Employer-sponsored 401(k) plans will also allow matching contributions to workers’ employer-sponsored Roth accounts. You want to start this early because the earnings in a Roth distribution are tax-free.

SECURE 2.0 Benefits for Those Facing Retirement

For those facing retirement, the SECURE 2.0 act also has some changes that will benefit you.

Starting in 2024, the age to take required minimum distributions from traditional individual retirement plans and 401(k)s rises to 73 this year and 75 a decade later, giving accounts more time to grow in value.

IRA catch-up contributions allow qualified individuals to defer additional taxable wages above the standard max IRA limits, reducing their taxable income in that year. Beginning in 2025, those aged 60 to 63 can contribute an extra $10,000 or 50% more than their current catch-up amount, whichever is greater.

Starting in 2023, a one-time gift of up to $50,000, adjusted annually for inflation, can be made to a charitable remainder unit trust, a charitable remainder annuity trust, or a charitable gift annuity instead of your required RMD. This means you can reduce your taxable income by $50,000 in the given year you make this election. 

The Wrap Up

The SECURE 2.0 act provides new ways and longer time horizons to grow your money, some tax-free if you plan right.

Have any more questions? Be sure to consult with a financial advisor to determine how these changes can benefit you and your retirement savings.