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Asset Protection
SECURE Act 2.0 Updates in 2024
Posted on February 27, 2024
The SECURE 2.0 Act was passed in 2022, and with more than 90 provisions being phased in over the next decade, the confusion continues. Part of Larson’s commitment to empowering all to flourish means keeping you informed on legislative changes, so that together with your advisor, you can make educated decisions about what actions you may want to take.
Here are a few key terms that may affect you:
- Do you have unused funds in a 529 plan? You now have new options. Up to $35,000 in a 529 plan can be rolled over tax-free to a Roth IRA for the beneficiary, provided the 529 has been open for at least 15 years.
- Have an emergency? Individuals are allowed one penalty-free withdrawal of up to $1,000 per year from IRAs or 401(k)s for unforeseen financial needs relating to personal or family emergency expenses.
- Making catch-up contributions? The SECURE Act 2.0 increases the $1,000 IRA catch-up contribution available to taxpayers 50 and older by indexing the amount to inflation.[i]
- Paying off student loan debt? If you’re making qualified student plan payments, employers are now able to make matching contributions to a retirement plan. Talk to your HR or benefits department to see if your workplace offers this option, and if you own your own business, consider implementing this as a benefit to help retain staff.
Some changes require more attention. Let’s take a deeper dive into some of them:
Unused 529 Plan Funds
Starting this year, the SECURE Act 2.0 allows investors tax- and penalty-free rollovers from 529 plans into Roth IRAs, assuming the 529 plan has been established for at least 15 years. This is a blessing for parents and grandparents who are contributing to 529s, but perhaps have funds left over in those accounts if their children or grandchildren attended a less expensive school, received scholarships, or skipped college altogether.
For investors looking to maximize every tax-planning opportunity, we recommend funding a 529 plan as soon as possible upon the birth of the beneficiary. Once the account has been open for 15 years, the account owner can start transferring the funds to a Roth IRA for the beneficiary in the amount of the maximum IRA contribution amount ($7,000) for each year until the $35,000 lifetime transfer limit is reached. With proper planning and continued annual deposits, the beneficiary’s Roth IRA balance at age 65 could easily approach, or even exceed, $1 million.
Expansion of QCDs to Split-Interest Entities
Qualified Charitable Distributions (QCDs) were traditionally capped at $100,000 per year, but starting this year the limit will be adjusted annually for inflation. The limit for 2024 is $105,000, a $5,000 increase from 2023. For gifts to count, they must come directly from the IRA by December 31st, and they must be made prior to taking RMDs if you want to offset the RMD. There are limitations, however, as QCDs cannot be made to all charities, such as donor-advised funds or private foundations.
Additionally, the SECURE Act 2.0 created options to allow gifting QCDs to split-interest entities. This expands the definition of charities to now include charitable remainder annuity trusts, charitable remainder unitrusts (CRUTs), or charitable gift annuities (CGAs). This change took effect in 2023, allowing individuals aged 70 ½ to make a one-time QCD of $50,000 to a split entity. Continuing a trend, this amount is indexed for inflation annually, with this year’s limit increasing to $53,000.
By broadening the definition of a charity to include charitable trusts and CGAs, the Act creates a way for individuals to earn income while also making a QCD.
Through this new charitable giving opportunity, individuals now have new ways to reduce their tax bill by making a once-in-a-lifetime gift. And by broadening the definition of a charity to include charitable trusts and CGAs, the Act creates a way for individuals to earn income while also making a QCD. Given the time and the costs involved in administering a trust, making a QCD to a CGA is likely the most practical and tax-advantaged way to benefit your favorite charity while retaining a stream of payments for your (and, perhaps, your spouse’s) lifetime.[ii] With the CGA option, you could save some of the administrative costs and tax filing fees while still benefiting from a tax deduction and from lifetime income. As always, talk with your advisor to see which option is best for you and your goals for your family and legacy.
Changes to RMDs
The SECURE Act changed the age at which investors need to start taking their Required Minimum Distributions (RMDs) from their qualified accounts. Those born between 1951 and 1959 must start taking RMDs at age 73, while those born in 1960 and later will have their RMD pushed back to age 75.
The benefit of the RMD push back for clients born in 1960 or after is the additional time those dollars get to sit and compound for an additional two years. This delay allows the opportunity to do more Roth conversions and more planning for distributions, an essential piece for investors with large traditional IRAs.
Additionally, the penalty for failing to take your RMD has been reduced from 50% to 25% with a three-year look back. However, if the error is corrected in a timely fashion (within two years), the penalty is reduced further to just 10%. Account owners should file form 5329 if they are in this situation.
While you have until December 31st to take your RMDs, we recommend not waiting until the end of the year to request those. Processing times at custodians like Schwab or Fidelity generally increase around the holidays, and while the tax penalty has been reduced, we don’t want Uncle Sam taking any more than he has to.
Stay Tuned
The SECURE Act 2.0 is complicated, with many terms taking effect at different times. While many of its provisions are geared toward those in retirement, if you, your parents, or your grandparents are approaching the age when you can start making QCDs or taking RMDs, talk with your Larson advisor as soon as possible to understand how the SECURE Act may affect you. Even if your family members are working with another advisor, we want them to be informed and updated on these changes. We at are committed to helping everyone understand what is happening and when, so that you can continue to flourish.
SECURE Act 2.0 information courtesy of Debra Taylor, CPA/PFS, JD, CDFA
