I’d like to meet the person in Washington who comes up with the silly names for laws just for the purpose of creating a catchy acronym. Case in point is the newest iteration of the Setting Every Community Up for Retirement Enhancement, better known as the Secure 2.0 Act.
The Act has a number of provisions that raise financial planning issues for a lot of people.
For example, were you born between 1951 and 1959? If so, the new Required Minimum Distributions (RMD) from your tax-deferred accounts is now 73, up from 72. If you were born in or after 1960, the new RMD age begins at 75.
If you’re retired, delaying your RMDs could mean that you’re in a lower tax bracket, which creates tax planning opportunities like Roth IRA conversions, harvesting capital gains, or accelerating IRA distributions that still keep you in a low bracket.
Another potential opportunity comes from allowing more Roth contributions through employer plans. Thanks to the Secure Act 2.0, Roth contributions are now allowed in SEP and SIMPLE IRA, and employers to make matching contributions into Roth accounts.
While Roth contributions are after-tax and don’t provide a tax-savings today, the asset grow tax-free and will be withdrawn tax-free.
Tax-deferred accounts allow the assets to grow tax-free, but the withdrawals are taxed as ordinary income, just like wages and salaries.
Different people have differing views on which is better: traditional or Roth. The argument in favor of the traditional IRA is that you get a deduction today, and a bird in the hand is worth more than two in the bush.
The Roth doesn’t give you a deduction today, but it should be valuable to be able to access your assets tax-free. That said, the traditional IRA folks have a good point because the government can change the rules in the future.
Next year, the Secure Act 2.0 will bring even more planning opportunities from 529 plans to Roth catch-up contributions in an employer sponsored retirement plan.
Stay tuned, and secure!