SECURE Act 2.0 Changes that go into effect in 2024

The SECURE Act 2.0 passed more than a year ago on December 29, 2022. Yet, it’s important to revisit this Act now, as a large number of changes written into this law begin to go into effect in 2024. 

SECURE Act 2.0 is an absolutely massive Act that contains many changes to retirement and retirement savings as a whole. While no single change has the significance that the original SECURE Act (passed December 17, 2019) had with regards to the (mostly) removal of the stretch IRA provisions when inheriting an IRA, the SECURE Act 2.0 includes vastly more changes to in total to retirement law.

Nearly everyone will be impacted by certain changes, whether you’re an accumulator saving for retirement, a pre-retiree preparing to retire soon, or currently a retiree. And several of them are set to go into effect starting this year.

Here are just a few of the more impactful changes to be aware of that begin in 2024, and planning opportunities to be mindful of that come with these changes:

Required Minimum Distributions (RMDs)

The new RMD age is 73. And for individuals born 1960 or later, your RMD age is 75. This actually went into effect in 2023 with the passing of the legislation, however, no one was subject to the new rule in 2023.

Starting in 2024, people born in 1951 will be turning 73 and will be required to start RMDs.

Planning Opportunity: The pushing back of the RMD age extends most people's “Gap” years (years between retirement and RMDs). “Gap” years are most commonly people’s lowest income years and present tax planning opportunities, such as implementing effective Roth conversion strategies or Tax-Gain Harvesting strategies.

Inheriting / Assuming your Spouse’s Retirement Account

Starting this year, should your spouse pre-decease you and you assume their retirement account, you’ll now be able to elect the RMD schedule based on their age. Up until now, when you would assume a spouse’s retirement account, that account would follow your own RMD schedule. It’s not required, hence the election, but in certain situations it can be favorable to use your spouse’s RMD schedule instead of your own. Important to note, this is a one-time and permanent election.

Planning opportunity: This election is most likely to be beneficial when the surviving spouse is the older of the two. For example, let’s assume:

• You are 75 and currently taking RMDs

• Your spouse is 67 and not scheduled to begin RMDs until age 73

• Your spouse passes at 67 and you assume their IRA

In this above example, if you elect to use the RMD schedule based on your deceased spouse’s age, you won’t need to start RMDs for another 6 years. In the past, you would have been required to start RMDs right away and it would be based on your own age of 75. You can now delay the realization of that income, which ultimately delays the taxes as well.

529-to-Roth IRA Transfers

This is one of the more unique changes in the Act, and one of my favorites, as it allows for a lot of creativity. Starting in 2024, you can now transfer funds from a 529 Plan to a Roth IRA. There are numerous restrictions and / or qualifications to be able to do this, which I’ll detail out below.

Eligibility for 529-to-Roth IRA Transfers:

• Transfers can only be made to the Roth IRA of the 529 Plan beneficiary

• The 529 Plan must have been maintained for at least 15 years

• The transfer in any year is limited to no more than the annual IRA contribution limit for that year

  • Example: 2024 IRA Contribution Limit - $7,000 ($8,000 if 50+)

  • This allowable transfer per year is reduced by any actual IRA contributions you’ve made that tax year

• The recipient of the transfer is required to have earned income during the transfer year

• Roth IRA income limits are disregarded for these transfers

• Lifetime maximum of $35,000 allowed to be transferred per individual

• You cannot transfer any 529 Plan contributions (and attributable earnings) made in the last 5 years 

The overall idea of this law from Congress is to not discourage people from saving into a 529 Plan. With 529 Plans, any earnings distributed that don’t get put towards educational expenses get taxed and penalized. Commonly, people saving in 529 Plans may have concerns that they’ll end up with more money in the plan than needed. Whether that be through unknowingly contributing more than necessary, the investments performing better than projected, their child going to a lesser-expensive school than anticipated, or their child didn’t pursue higher education altogether.

This law provides flexibility around college planning. It encourages the use of 529 Plans as a vehicle for savings, while providing peace of mind knowing if a portion of the savings doesn’t get used for education, it can still be put towards retirement and grow tax- (and penalty) free.

Planning opportunity: As mentioned above, you can make $35,000 worth of transfers lifetime to a beneficiary. There is no limit to the number of beneficiaries, though. Meaning, if you end up with a 529 Plan that has a significant balance after education is paid for, you can transfer $35,000 to yourself, another $35,000 to your spouse, another $35,000 to each one of your kids, so on and so forth. Remember, earned income is necessary, and you’re limited to the IRA contribution limits per year, but this can help aid your own retirement, or help kickstart your child’s / grandchild’s retirement savings as well.

Additional Notable Changes starting in 2024

• RMDs for plan Roth accounts [i.e., Roth 401(k), Roth 403(b)] are eliminated (similar to Roth IRAs now)

• Employers are now allowed to make matching contributions to the Roth side of your plan

  • Previously, all employer matching contributions in retirement plans had to be pre-tax contributions

• Employer matching contributions can now be put towards employee’s qualified student loans

• IRA catch-up contributions will now receive cost-of-living adjustments

  • IRA catch-up contributions have been $1,000 for many years

  • Moving forward, IRA catch-up contributions will increase annually in increments of $100 

These are just a handful of the changes that are going into effect this year, along with all the changes that went into effect in 2023. But they’re some of the more impactful ones in my opinion and the ones that will likely effect the majority of people, instead of a small subset of people. Should you have any questions regarding any of the above, or the SECURE Act 2.0 in general, please don’t hesitate to contact me.

-      Drew Schaffer, CFP®

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