Secure Act 2.0: Reminders for 2024

December 1, 2023

On December 29, 2022, the SECURE Act 2.0 (SECURE 2.0) was signed into legislation. Many provisions included in the bill will be phased into effect over the next several years. Here are some of the notable provisions for individuals that will become effective January 1, 2024:

• 529 to Roth IRA transfers – One of the more interesting provisions from SECURE 2.0 includes the ability to roll up to $35,000 (lifetime limit per beneficiary) from a 529 College Savings Plan to a Roth IRA, tax-free. There are several considerations to be aware of, including:
  • The 529 account must have been opened for at least 15 years
  • 529 beneficiary must be the same individual as the Roth IRA owner
  • Annual rollovers are subject to the current Roth IRA limits ($7,000 for 2024) and they do count towards annual contribution limits (i.e. you can’t transfer $7,000 and also contribute an additional $7,000)
  • Income thresholds that normally apply to Roth IRA contributions do not apply; however, you cannot rollover more than the beneficiary had in earned income during the year
  • Contributions or earnings made in the last five years are ineligible

  *Note that while you may change the designated beneficiary on the 529 account (to transfer funds into your own Roth IRA instead of your child’s, for example), it is best to hold off on doing this right now until we receive further guidance from the IRS on whether changing the beneficiary affects and/or resets the 15-year holding period

  *Additionally, continue to monitor state legislation, as there may be states that do not conform and choose to impose taxes on transfers

• Elimination of employer Roth RMDs – Roth assets held in an employer retirement plan will no longer be subject to Required Minimum Distributions (RMDs). This was previously a significant difference between a regular Roth IRA and a Roth account held in an employer-sponsored plan.
• Surviving spouse election as employee – A surviving spouse can now elect to be treated as deceased employee for purposes of RMDs from employer-sponsored retirement plans (i.e. surviving spouse can elect to start RMDs at the deceased’s RMD age vs. their own). There may be a planning opportunity here particularly if the surviving spouse is older than the deceased spouse.
• Mandatory Roth catch-up contributions for high wage earners – The provision that mandates qualified retirement catch-up contributions to be Roth for wage earners making $145,000 was originally set to be effective in 2024; however, the IRS granted a 2-year administrative transition period for this provision, such that it will not be mandated until 2026 (Notice 2023-63).

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. We suggest that you discuss your specific situation with your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.

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Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.

All investing involves risk including loss of principal. No strategy assures success or protects against loss.