The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 is a law designed to accomplish a few big goals for the American worker including encouraging more retirement savings, enhancing retirement plan rules for those over age 60 and retirees, and providing additional opportunities for surviving beneficiaries and students. It is a very complex statute, but we have provided seven important topics that we believe will bring the most value to our clients. The summaries below will explain the new rules that have been set, along with their effective dates. If you have further questions or want to know how this applies to you, please reach out to your Wealth Manager or the Financial Planning Team. We will end the piece with an update from our investment team on what has been happening in the market this past week.

Required Minimum Distributions (RMDs)
The age for which required minimum distributions (RMD) must be taken from retirement accounts will be increasing to age 73 starting January 1, 2023. This RMD age applies to anyone born from 1951-1959. Individuals will now have an extra year to delay the mandatory withdrawal and take more advantage of tax deferred savings. If you turned 72 in 2022 or earlier, you would continue taking yearly RMDs as scheduled. Starting January 1, 2033, RMD age will increase again to 75. This RMD age applies to anyone born 1960 or later. If you fail to take your mandatory RMD each year, there is a tax penalty that is enforced. Starting January 1, 2023, the IRS is decreasing the penalty to 25% of the RMD not taken. The penalty previously was 50%. Starting immediately, annuities in qualified plans or retirement accounts offer additional benefits without violating actuarial rules related to RMDs. Lastly, starting January 1, 2024, Roth accounts in employer-sponsored plans (Roth 401k) will be exempt from the RMD requirement.

Catch-Up Contributions
Previously, catch-up contributions for IRAs have been $1,000 flat with no annual inflation adjustments. Starting January 1, 2024, IRA catch-up contributions will be subject to inflation adjustments. We are currently experiencing high inflation, as of 1/12/2023, the Consumer Price Index (CPI) came in at 6.5%. Starting January 1, 2024, catch-up contributions will also be subject to Roth rules for certain high-income taxpayers whose wages are greater than $145,000 from the previous calendar year. Starting January 1, 2025, participants aged 60-63 can make a catch-up contribution of $10,000. For SIMPLE plans, you can only contribute $5,000 for ages 60-63.

Surviving Spouse Beneficiaries 
When it comes to inherited retirement accounts, surviving spouses have had special elections available to them when deciding how they want to receive or treat those accounts. The SECURE Act 2.0 provides an additional option to spouse beneficiaries of retirement accounts that allows them to elect to be treated as the deceased spouse. This means that RMDs for that specific account would not begin until the deceased spouse would have reached their RMD age. If the spouse beneficiary is the older one in the couple, they get the benefit of delaying RMDs for their inherited retirement accounts – even if they pass their own RMD age. Alternatively, if the spouse beneficiary is the younger one in the couple, they still have the opportunity to choose to put the inherited retirement account in their own name and wait to take RMDs later, at their own RMD age. This additional option opens the door for more tax deferral and tax saving strategies to be deployed and ultimately give the spouse beneficiary more funds to live on or pass down to the next generation.

Active Employer-Sponsored Retirement Plans
Effective immediately, employers may deposit matching or non-elective contributions into the employees’ designated Roth account. Once the employer plan is in effect after 12/31/2024, new 401(k) and 403(b) plans must auto enroll eligible employees. Auto deferrals will start between 3-10% and will increase by 1% each year, unless the employee opts out or customizes their deferral amount. The maximum deferral will be at least 10% but no more than 15% of compensation. One provision is that unless the employee elects to contribute a different amount or not contribute at all. For SIMPLE & SEP IRAs, beginning January 1, 2023, these accounts will be eligible for Roth contributions. For any clients who are sole proprietors, single member LLCs, etc., they may establish and fund a solo 401(k) plan. This is effective for plan years beginning after the date of passing the SECURE Act 2.0. The change is that you can fund plans with deferrals from a previous tax year, up to the date of individuals tax return. This does not have any extensions.

Emergency Savings & Student Loans 
While this law was being drafted in Congress, there was a big focus on creating more opportunities for the American worker to save for retirement and emergencies. We shared in previous paragraphs about the sweeping changes that are being made to various aspects of retirement plans. As a result, employer-sponsored retirement plans may now add an Emergency Savings Account feature. This option allows employees to contribute up to $2,500 of after-tax dollars from their paycheck to a Roth account that is connected to their employer-sponsored retirement plan. These special accounts allow employees to use the funds as they need, ideally for emergencies, and grant them the ability to make withdrawals at least once a month. It is estimated that 56% of Americans do not have enough saved to cover a $1,000 emergency expense. The addition of an employer sponsored emergency savings account creates more opportunities for Americans to save and be prepared for unexpected expenses. Similarly, employers can now “match” employees’ student loan payments by putting the matching payment into a retirement account. This is part of Congress’ push to provide retirement saving options to those who have limited funds to save due to high student loan payments.

Qualified Charitable Distributions 
For those who are charitably inclined, a small, but impactful, change has been made to Qualified Charitable Distributions (QCDs.) Historically, the annual amount that anyone over age 70 ½ could donate, tax-free, to charity from their retirement account was $100,000 annually. Beginning in 2024, that $100,000 limit will be linked to inflation and may be subject to increases over the years.

529 Plans 
Students also stand to benefit from the changes that the SECURE Act 2.0 brought. Previously, one of the drawbacks to 529 Plans was that the funds could only be used for qualified education expenses. If the beneficiary of a 529 Plan graduates college with a balance left in their account, the 529 Plan either had to be transferred to another beneficiary or the funds could be taken out of the account – but at a steep penalty. This new law allows 529 Plan beneficiaries to roll over up to $35,000 of the plan into their own Roth IRA. This rollover is subject to Roth limits, meaning it will take at least 5 years for the beneficiary to reach the $35,000 rollover limit. There are various other qualifiers and parameters surrounding this new benefit, we encourage you to reach out to your Wealth Manager to discuss how this can impact your personal situation. Nevertheless, this additional option given to 529 Plans provides more opportunity to help jumpstart a child’s savings.

The SECURE Act 2.0 creates great opportunities for retirement savings, tax deferral and saving strategies, charitable planning, education planning, and so much more. However, the many small details and caveats throughout can make the application of these laws more complicated. Reach out to your Wealth Manager if you want to know how this can apply to your personal financial situation.

The new year – so far – has been off to a better start than what investors are used to. We closed out last week in positive territory for all three equity indices in a stellar fashion. Granted, Wall Street has a blank canvas to work with. This morning, however, we received a new inflation figure that showed that inflation cooled again for the month of December (down to +6.5% Year-over-Year). It’s still a relatively high number but coming down healthily which the markets are absorbing well. Jerome Powell gave a talk on Tuesday, but his prepared remarks did not comment on the Federal Reserve’s coming interest-rate decisions and rather insisted on policy-setting autonomy. Perhaps on February 1st, that message will be clearer when the new rate is announced. For the week, the S&P 500, Dow Jones Industrial Average, and Nasdaq are all up 4.63%, 3.84%, and 6.75%, respectively, as of today’s close.

Your 4th Quarter reports from Apriem will be uploaded to your client portal or mailed to you by January 15th for you to review. Please call our office toll-free at (888) 253-0288 to schedule a meeting with your Wealth Manager.

Apriem Advisors will be closed this coming Monday, January 16, 2023, in observance of Martin Luther King, Jr. Day. We will return to the office on Tuesday, January 17, 2023.

The Financial Planning Team

Christopher Whitaker, CFP®, AIF®
Megan Schwab, CFP®, AIF®
Cole Ducote, AIF®

The term “plan” or “planning,” when used within this report, does not imply that a recommendation has been made to implement one or more financial plans or make a particular investment. Nor does this article provide legal, accounting, financial, tax or other advice. Rather, this article and the illustrations therein provide a summary of certain potential financial strategies. You should consult your tax and/or legal advisors before implementing any transactions and/or strategies concerning your finances.  
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