Authored by: Jordan P. Egert, CPA, CFE, CDFA ® and Abbie M. Niehoff, MPS, CFP®, CDFA®
The SECURE 2.0 Act of 2022 (SECURE 2.0) was included as part of the Consolidated Appropriations Act, 2023 passed on December 23, 2022. This act primarily focuses on the substantial improvement to retirement savings options – expanding on the initial SECURE Act passed in 2019. The Act contains 92 new provisions and many of them can impact divorcing parties financial decisions, both short and long term. Without an understanding of the full bill many spouses could end up agreeing to options that may not be as equitable, fair, or meaningful.
In reviewing the SECURE 2.0, we have identified several key issues to be aware of when working through divorce proceedings. These items are not all encompassing, but are several to be familiar with.
- Required Minimum Distribution (RMD) age. Beginning in 2023, Secure 2.0 Act increased the RMD age to 73 (from previous age of 72). Beginning in 2030 the RMD age will increase again to age.
- Designated Roth Accounts Starting in 2024, employer retirement plan Roth accounts (401k or 403b) will no longer be subject to RMDs. This provides individuals with a longer window before being required to take distributions from tax-advantaged retirement accounts, allowing for potential tax free growth of retirement savings.
- Catch-up Retirement Contributions.
- Currently, those aged 50 and above can contribute an additional $7,500 as a catch-up contribution to their employer-sponsored retirement plans. Under the Secure 2.0 Act, catch-up contribution limits will be indexed for inflation and allow for continuously increasing. Furthermore, starting on January 1, 2025, individuals between the ages of 60 and 63 will be able to make catch-up contributions of either $10,000 annually or 150% of the standard catch-up contribution limit for 2024. This provision would enable individuals in that age bracket to boost their retirement savings beyond the standard contribution limits. This provides an excellent opportunity for spouses to aggressively fund up and/or repair their nest egg for retirement.
- Starting in 2024, individuals making over $145,000 per year are only allowed to make catch-up contributions as an after-tax Roth contribution.
- Currently, those aged 50 and above can contribute an additional $7,500 as a catch-up contribution to their employer-sponsored retirement plans. Under the Secure 2.0 Act, catch-up contribution limits will be indexed for inflation and allow for continuously increasing. Furthermore, starting on January 1, 2025, individuals between the ages of 60 and 63 will be able to make catch-up contributions of either $10,000 annually or 150% of the standard catch-up contribution limit for 2024. This provision would enable individuals in that age bracket to boost their retirement savings beyond the standard contribution limits. This provides an excellent opportunity for spouses to aggressively fund up and/or repair their nest egg for retirement.
- Matching Roth Contributions Employers now have the option to match Roth contributions, providing individuals with the opportunity for tax-free savings and growth during retirement. Previously, employers were only allowed to match pre-tax contributions.
- 529 College Savings Accounts Starting in 2024 beneficiaries of 529 college savings accounts are permitted to rollover $35,000 over their lifetime to a Roth IRA in their own name. There are a few specifics worth mentioning when it comes to this change: (1) the 529 must have been open for 15 years, (2) the rollover is subject to the Roth IRA annual contribution limits which is currently $6,500, (3) contributions made in the last 5 years, including the corresponding earnings, and not eligible for the tax-free transfer, and (4) the individual must have earnings at minimum equal to the amount of the rollover. This is a great planning tool as once rolled into a Roth IRA it can potentially be distributed tax free, even before retirement age.
Careful attention to current and pending regulation impacting retirement assets is imperative, as they can materially change expected retirement values, division of the marital estate, support considerations, and future available resources. Assumptions and projections must be adjusted accordingly when evaluating options following the changes enacted by Secure 2.0. Individuals now have the opportunity to grow more tax-free retirement, tax-deferred retirement, and utilized funds in a more tax efficient manner then previously availed. Overall, the changes brought about by Secure 2.0 present greater opportunities for individuals to prepare for and enter into retirement.
Jordan P. Egert, CPA, CFE, CDFA ® is a collaborative financial neutral and expert, at Councilor, Buchanan & Mitchell servicing the D.C., Virginia, and Maryland regions and beyond. His expertise lies in assisting attorneys, spouses, and other divorce related professionals make well- informed financial decisions that impact today, tomorrow, and beyond.
Abbie M. Niehoff, MPS, CFP®, CDFA® is a collaborative financial neutral and expert at Councilor, Buchanan & Mitchell servicing the D.C., Virginia, and Maryland regions. Her specialty lies in assisting individuals, couples, attorneys, and other divorce related professionals navigate the complex financial implications of divorce. She helps educate and empower her clients to make well informed decisions and achieve mutually agreeable settlements during the divorce process.