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SECURE Act 2.0 – Important Retirement Planning Changes to Know

Financial Symphony / John Stillman
The Truth Network Radio
January 26, 2023 4:01 am

SECURE Act 2.0 – Important Retirement Planning Changes to Know

Financial Symphony / John Stillman

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January 26, 2023 4:01 am

The SECURE Act 2.0 was pushed through Congress late last year, and even though you won’t see too many exciting headlines about the legislation, there are actually some great planning opportunities inside.

We spent a little time talking about the RMD age change that will impact people in or near retirement in our last episode. Now we want to highlight a few more positive changes that you need to know about, including catch-up contribution increases, a 529 to Roth option, and a benefit for people for some people still paying off student loans.


Here’s some of what you’ll learn in this episode:

  • Catch-up contributions for increase for people aged 60-63. (1:15)
  • You’ll have the ability to move 529 money to a Roth with restrictions. (3:36)
  • Student loan payments could qualify you for a company 401(k) match. (8:06)


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Welcome back in to Mr. Stillman's Opus. Glad to have you. I am Ben George.

We'll be joined by John Stillman momentarily. We started talking a little bit last time out about the SECURE Act. It was past end of December. You might have heard about it, maybe not, because it was kind of passed quickly at the end of the year during the holidays.

A lot of people have stuff going on, so you might not have caught up on exactly what is in the SECURE Act 2.0 and what changed from the original SECURE Act that was passed three years ago. So we talked a little bit about R&D age last time out and how that got pushed back. So if you want to learn more about that, check out our last podcast.

Make sure you go back through and listen to that. But today, we want to hit on a couple other changes that have happened. Catch-up contributions, a big 529 Roth update, as well as some student loan news as well. So some pretty big changes taking place with the SECURE Act 2.0.

And if you haven't sat down and looked at it and worked with your advisor to find out whether or not you need to be making any changes or adjustments this year, now is a great time to do so. So here's John Stillman from his recent radio show talking about SECURE Act 2.0. Let's get back to the conversation where we're having about the SECURE Act 2.0.

You already mentioned that the R&D age has been pushed back one more time. And that is very important for some of the folks out there. But some other things involved in this is you have now a special catch-up contribution facet of this whole thing. Explain that if you would. Yeah.

So not a huge deal, but it is something to be aware of. So the way it's always been is that once you're over 50, you can put a little bit more into your IRA or a little bit more into your 401k every year than you could before you were 50. So they've increased those catch-up contributions, not the condiment, not catch up, but catch up. You can catch up putting a little bit more. If you feel behind, you know, and you're in your mid-50s, you can put a little bit more into your retirement accounts than you could before. Now if you feel like you're not really quite cutting the mustard, then you can do this, you know. Let's see what you did there. I'm just going to add me into that.

Thank you so much for that. So here's the weird thing about this new provision that they've added in this law. It's that if you're between the ages of 60 and 63, I don't know what's magical about that age range that they pick, but for anybody between 60 and 63, starting in the year 2025, so you do the math and figure out if you're going to be in that age range in 2025, you can make catch up contributions of $10,000. You can put an extra $10,000 into your retirement accounts.

Now, of course, you have to have the $10,000 to be able to do that. You understand that, but this is a big deal if you have somebody who's, you know, in their prime earning years, in their early 60s, making more money than they've ever made. They're done paying for college for the kids. The kids are off the payroll. People in that boat probably do, in a lot of cases, have that extra $10,000 and this could be a valuable thing for them to get more money into the retirement accounts, bring their current year taxable income down a little bit, so that's interesting. Well, to bring in another animal here, I'm just kind of buffaloed by how they come up with these numbers, I mean, between the ages of 60 and 63. I mean, why?

I really regret that we ever went down the cow path there. Oh, come on, stop beefing about it. Okay, we're talking about SECURE Act 2.0 and also there is a thing called 529 and, you know, we talked about that a lot when you're putting aside money for, you know, college or whatever the case may be for your kids.

You can, there's an option 529 to a Roth, a transfer option there. What's that all about? All right, this is brand new. To me, this came out of nowhere. I didn't even know they were talking about this with this particular legislation.

So, we'll talk about the details of it in a minute. But first, big picture, what are the accounts we're talking about? So, a 529 is a college savings account. You put that money in for your kids or grandkids or whoever, that money grows tax-free and comes out tax-free as long as it's used for qualified educational expenses. Okay, so that's what a 529 is.

A Roth, of course, is the tax-free version of a retirement account. You put the money in, it's no tax advantage for you that year when you put it in but it all grows tax-free and comes out tax-free in retirement. Okay, so when people have a 529 for their kids and they're trying to figure out how much to put in it or how much to put in maybe a grandchild's 529, one of the things that they often worry about is, well, what if we overfund it? What if we end up with $50,000 in a 529 and then this kid doesn't go to college or goes to college but gets a scholarship of some kind and we don't need the $50,000 for school. Well, you haven't lost the $50,000 but you do get penalized if you take it out for something other than educational expenses. So, people are a little leery sometimes of putting too much money into the 529. Well, now what this does is it takes that worry off the table. So, if you end up with quote-unquote too much money in a 529, well, then you can just start moving it over to the Roth IRA every year until you get it all moved over.

So, Ron, let's think about this. Remember we were talking about the catch-up contribution before saying if somebody has an extra $10,000 and they're in that age range, they could put the money in their retirement account. Well, let's think about that same couple who has an extra $10,000 and a new grandchild is born. Okay. What if they take that $10,000 and plop it in a 529 for the kids at birth? That makes sense.

Okay. Let it grow for 20 years, maybe use some of it for the college expenses but then whatever's left as soon as the kid has an earned income which could be 16 if they're working a part-time job maybe not until after college depending on what they're doing work-wise but as soon as they have an earned income and they're eligible to contribute to Roth, they can take the money from the 529 and move it over to the Roth and use that as their Roth contribution for the year. So, think about if you said I'm going to put in $10,000 when my grandchild is born, I'm going to let it ride in the 529 and as soon as they get a job, we're going to start moving it over to the Roth. $10,000 at birth that rides in the market for 60 years and comes out tax-free on the other end, we're talking about $1.4 million that that kid has in the Roth at retirement. That's amazing.

It's incredible. So, for grandparents who are trying to figure out how to help with stuff like this, now I'm much more interested in them putting money in a 529 because we don't have to worry about over-funding it. We have an escape plan now that we didn't have before. So, a really cool element that's, you know, for most people might seem like it's irrelevant and not going to affect them but I think you'll find people willing to fund 529s more and then, you know, we can use that money down there because think of it, you got out of college, Ron, you have your first job, you're making ends meet but you probably don't have enough money to max out a Roth IRA every year which if you're 22 and out of college, that's $6,500 a year.

Most 22-year-olds ain't got that cabbage, right? But if we can move it over from the 529 that they didn't use for college, pretty incredible. So, I like it. Well, hey, something else here that, you know, I'm all excited about it, just thinking about this for young people who, let's say they have a lot of student debt and they have a full-time job. There's another change to a company 401k match. If you have a full-time job and you're working for a company that is providing a 401k for you and they have matching funds involved here, I mean, this particular change to the SECURE Act is going to be a big deal because, you know, it's, well, you explain it, John.

I mean, really, to me, it just seems like a wonderful thing. So, let's think about that 22-year-old that we were just talking about, right out of school, first job and they have student loans and they have to pay $350 a month on the student loans. Now, obviously, that hasn't been the case for the last couple of years because they keep just saying, hey, you don't have to pay your student loans and they keep pushing that further and further out.

But pretend like it's in a normal world that hadn't been shaken up by a pandemic and you have to make your student loan payments. So, you say, well, you know, I've got this bill and this bill and I've got to pay $350 a month on my student loans. I just, I don't have enough that I can put money into the 401k.

I'm gonna have to get these loans paid off first. And all the while you're missing out on a company match because you didn't put any money in the 401k yourself. Now, there are companies that will put money into the 401k whether you do or not.

Yeah. But for a lot of companies, they require you to put some money in. Well, what this change in the law is saying that if you're making your student loan payment, that can qualify you to get the company match. So even if you're not putting money yourself into the 401k, but you are paying down those student loans, you can get the company match by virtue of paying off the loan. So it's really interesting. It's creative, a way to help people start to build retirement a little bit. I mean, obviously your company still has to do a match, right? It's not forcing the company to do a match, but for companies that do offer a match, this is a way that you can get it without actually putting money in the 401k yourself. So what a great way to encourage young people to start saving.

It's great. And the thing that's weird about the secure act is like, nobody is going to talk about it, right? Like you're not going to see any huge headlines. I mean, certainly I've had clients who were very aware of the RMD age change, but for the most part, like they're not getting down in the nitty gritty on this kind of stuff, but it's actually a good example of Congress working together and doing some, you know, logical, beneficial things. Of course, those things never make the news, but it is nice to see them occasionally do something.

And I do highlight the word occasionally, but occasionally do something that's actually helpful. So a lot of good things in the secure act. I like what they have going on. There's really nothing in the secure act where I'm saying, I don't like that.

I mean, some of it I don't really care about, but some of it is pretty interesting and positive. So if you have questions, by all means reach out, let's schedule a 15 minute retirement ready phone call, no cost, no obligation to have that conversation that rhymed. Um, but if you'd like to just figure out where you are, what you need to be doing moving forward, we can probably get to the bottom of it in 15 minutes. And then if you want to come in later, come visit at the farm, or if you want to jump on zoom at some point, we can do that too. But, uh, for now let's start with the phone call and see what you need. Carolina wealth stores doing business as a Rosewood wealth management is a registered investment advisor in the state of North Carolina. The material presented is intended to be general information and should not be construed by any consumer as the rendering of personalized investment advice.
Whisper: medium.en / 2023-01-26 06:18:37 / 2023-01-26 06:24:00 / 5

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