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COLUMN: New law contains some important, and beneficial, changes

Posted 1/17/23

Laws are like sausages: better not to see them being made. Otto von Bismarck allegedly coined that phrase or something like it.

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COLUMN: New law contains some important, and beneficial, changes

Posted

Laws are like sausages: better not to see them being made. Otto von Bismarck allegedly coined that phrase or something like it.

Well, look out Otto because the politicos have been grinding out some new sausage and it changes some important things in the financial planning world.

Introducing the SECURE Act 2.0 of 2022, signed into law on Dec. 29,2022. Coincidentally, falling on the same day my son turned 21. I’m guessing the former was not ushered in with tequila shots like the latter was, but you never know.

Let’s look at what is in store for us – there really is some good stuff:

The age for Required Minimum Distributions increased to 73 for those who attain age 72 after Dec. 31, 2022. And in roughly 10 years, the RMD age will increase to 75;

The excise tax for failure to take RMDs is reduced from 50% to 25% and that drops to 10% if the individual corrects the shortfall during the two-year correction window;

Employers can now offer employees small, immediate financial incentives (e.g. gift cards) for making deferrals to a retirement plan. Any incentive/motivation to get people saving for retirement is a good thing; and

529 to Roth Rollovers. This is what I find most exciting and powerful about this legislation. SECURE Act 2.0 creates a way to do a tax and penalty-free rollover from a 529 education account to a Roth IRA under certain circumstances. Currently, if you have leftover money in a 529 account and distribute it for non-education related expenses, it can be subject to penalties and taxes. Now, beneficiaries will be able to do a rollover of up to $35,000 aggregate in life from a 529 plan to a Roth IRA in their name. The 529 would need to have been open for at least 15 years.

This is really a beautiful thing. It helps remove the uncertainty of the “what if I overfund the 529 account and my child doesn’t need it” question. Now, if the conditions are met, those
excess funds can go into a Roth and kickstart that child’s investment/retirement savings. I love this and it should offer even more motivation to get 529 accounts started early for their
children.

There’s a great deal more contained in this legislation and it involves changes being phased in over the next several years. The above are just a few highlights but the overall flavor of it lends itself to encourage retirement planning and to lessen/slow forced withdrawals.

It is usually so easy to bash the majority of what is produced in the sausage factory and to shake our collective heads at the apparent lack of common sense involved.

Thus, in this case, let’s give credit to the effort. How it transpires and works on a practical, applied basis remains to be seen but the intent seems to be a legitimate one, designed to help Americans save for their educations and retirements.

Pass the platter, I’ll have another link.

Original content provided by Gregory Mattacola, CFP, senior adviser at Strategic Financial Services. Content is provided for educational purposes only and should not be used as the basis upon which to make an investment or financial decisions.

The content is developed from sources believed to be providing accurate information.

The information in this material is not intended as tax or legal advice. Investments involve risk and, unless otherwise stated, performance is not guaranteed.

Past performance is not indicative of future performance.

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