It impacts the way you should transfer your estate to kids, the required timing of your IRA required income, and new ways to build Roth accounts. It is the government at work seeking tax revenues and looking for ways to help Americans build retirement accounts.

In Brief:

• Secure Acts 1 and 2, arrived on our doorsteps January 2020 and January 2023:
  • Eliminating the Stretch IRA – the single largest hit for family wealth transfer planning.
  • Expanding Roth account-building opportunities.
  • Extending the age of RMDs to 73 (for those born in ‘59 or before), then in 2033, raises to age 75 (for those born 1960 or after)

What’s a Stretch? Until January 2020, Americans could plan to transfer IRAs to their kids for their own lifetime use as tax-deferred retirement plans, to ‘stretch’ the privileged use of the qualified plan. With Secure Act 1, kids inheriting IRAs are now required to deplete them within 10 years of inheritance. This applies to both traditional and Roth IRAs. Estate transfers generally occur when heirs are in high-income earning years and so this will be a significant tax hit for many.

Planning changes:

• Highly appreciated assets like real estate and long-term stock holdings get ‘step up at death’ and will transfer to heirs with no capital gains tax. These will be better legacy transfer assets for kids.
• Care Costs in old age are fully tax-deductible (under current law) and drawing down taxable IRAs to pay for care will make sense to complement weak (or missing) LTC insurance policies.

Roth 401k/IRA treatments:

• Look for an expansion of Roth 401k in your workplace plans: your employer match may now be available for your Roth 401k contribution.
• If you are over 50 and do catch up contributions, that is required to go to a Roth 401k.
• SEP and SIMPLE plan contributions can now be made on a ROTH basis.
• Extra catch up is available for 60–63-year-olds, begins in 2025, allowing additional $10,000.
• 529’s can now be transferred to Roths; Many people wondered as they funded 529s for kids and grandkids: but what if they don’t go to college… Or don’t use all the funds… Should I fund a different account instead of this focused 529? Secure Act 2 allows you to transfer unused funds to Roths, with limits.

Planning changes:

• If you have unused funds in a mature 529 (established at least 15 years), you can transfer $35,000 to the beneficiary’s ROTH account.
  • The annual transfer allowed is the annual IRA contribution limit, less any contributions made to that person’s IRAs.
  • The beneficiary on the 529 can be changed for this purpose and can only change to a family member of the current beneficiary.

Extending the age for RMDs – RMDs can be confusing to many.

Your retirement accounts are your nest egg, built to provide you with income in retirement. You may retire at 60 or 70, earlier or later. Don’t be distracted by the RMD age – it is the IRS making sure that, at a minimum, a percentage of your account is coming out and getting taxed. It is more important to look at the big picture of your life timeline, your accumulating assets and cash needs, and the best tax planning for your household, and take money from your IRA considering all factors. Now that you cannot transfer unused tax-deferred IRAs to kids as a ‘stretch IRA’, it is best to look at the RIGHT distribution for you and your family over time and not be distracted by a focus on RMDs. But absolutely, do meet them!

For some, RMDs are too low and too late for proper planning, for others they are unneeded funds, and an unwanted tax burden in part or in total.

Planning changes:

For those who do not want additional taxable income, RMDs can be transferred in whole or in part to a favorite charity in what is called a QCD – a Qualified Charitable Deduction, allowed for folks over 70½, and to a maximum of $100k per year. Secure Act 2 added an inflation factor to that so the maximum amount will increase over time.

Both Secure Acts were long and included many more law changes, but these are the valuable kernels that I focus on for client planning. Let me know if you have questions on any of these issue – they will be covered in review meetings as appropriate.