What Secure Act 2.0 Missed

What Secure Act 2.0 Missed

What Secure Act 2.0 Missed

There’s been mega media attention surrounding Secure Act 2.0. And why not? Between the original Secure Act of 2019 and the updated provisions, the rules usher in some major changes to the U.S. retirement system.

Perhaps just as notable are the measures that didn’t make the cut this round. While Secure Act 2.0 contains over 100 modifications, none rise to the level of its predecessor, and many changes will be phased in slowly. Here are the top items I expected to see in Secure 2.0 that were omitted.

No new limitations on Roth IRAs. Rumors that backdoor and mega backdoor Roth IRAs are slated for the chopping block have been circling for quite some time, yet they evaded elimination once again. This means that even high-income earners can continue to receive the tax-free benefits of a Roth IRA. Likewise, there were no new limits placed on who can make routine Roth conversions. And with required minimum distributions (RMDs) being pushed back to age 75 over the next decade, this may present an opportunity to grow your money tax-free for longer.

In some ways, Secure Act 2.0 expanded access to Roth IRAs by allowing unused funds from qualified college savings plans (529 accounts) to be transferred to a Roth IRA free of tax or penalties if certain conditions are met.

Qualified charitable contributions remain unchanged. I thought the age requirements for making qualified charitable contributions would change, but we dodged that one, too. This means gifts to eligible charities made directly from a retirement account don’t count as taxable income beginning at age 70½. No change.

No additional guidance on the 10-year rule. The biggest Secure Act surprise, in my opinion, was the lack of clarifying language surrounding the 10-year inheritance rule for noneligible designated beneficiaries.

Here’s what we know: The Secure Act of 2019 put an end to the stretch IRA, whereby individual retirement accounts could be passed along from one generation to the next, growing tax-free. Instead, the 2019 bill implemented a 10-year rule requiring the entire IRA account to be disbursed by the end of the 10th year following the original IRA owner’s death. More recently, the IRS said it was waiving penalties on missed 2021 and 2022 required payouts within the 10-year window. And it left it at that.

Unfortunately, Secure Act 2.0 doesn’t provide additional clarification. We’ll be on the lookout for clear guidance on the 10-year rule. In the meantime, contact your wealth management team with specific questions or to discuss your distribution strategy within the context of your overall financial plan—we’re here to help!


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