Secure Act 2.0: Clients Want to Know…

While at first the concept of taking from the tuition account to fund a retirement fund may bring a quick cringe, clients are mainly interested in this provision because of the flattening in the increase in tuition across the higher education industry.

The SECURE Act 2.0, or SECURE 2.0 that passed at the end of 2022 contains many provisions that will benefit retirement investors of all sizes. We’ve prepared a short summary of the major provisions and when they take effect. You can find that summary here (INSERT LINK). But what we, as investing professionals, find fascinating and helpful may not track with what piqued our clients’ interest or concern. To help advisors, we’ve noted a few aspects of the new law that clients may have the most questions about.

529 to Roth IRA: This small provision has caught a lot of attention. Under the new law, clients can make tax free rollovers from section 529 accounts (tuition and school related expense beneficiary accounts) into Roth IRAs. This provision, capped at $35,000, subjects these rollovers to the contribution limits on Roth IRAs. This provision does not become effective until January 2024.

While at first the concept of taking from the tuition account to fund a retirement fund may bring a quick cringe, clients are mainly interested in this provision because of the flattening in the increase in tuition across the higher education industry. “ Recently published data from the College Board show that between 2020-21 and 2021-22, nominal tuition rates increased 1.6% at public four-year colleges and 2.1% at private nonprofit schools. Since inflation during that period was 5.3%, college tuition has fallen in real terms.”[1] By 2022, public confidence in the power of a degree has decreased. This is putting pressure on some colleges to drop their tuition by more than 50%.[2] According to the Washington Post, Fewer than 1 in 3 Americans surveyed by the Strada Education Network now think a college degree is worth the cost. Overall, college enrollment continues to drop.[3]

Clients may have set aside money into a 529 account with a specific predicted amount of increase in tuition. With those increases slowing down, or even decreasing in some cases, the amount saved may now be greater than anticipated. Additionally, some clients may have saved for a four-year program when their children have decided to pursue a different path or shorter program. New research shows that fewer parents are focused on preparing their children for college.[4]

Next on the list of questions clients may have are changes to the required minimum distributions (RMDs). This includes the changes in the age at which RMDs must be taken, from age 72 to 73, effective January 1, 2023 (for people who celebrate their birthdays after December 31, 2022 and before January 1, 2023. And, starting in 2032, it is delayed to 75. Clients may want to know how this change will impact their retirement planning, how delaying RMD may occur by working and on how much that could gain them in additional retirement savings via interest.

RMD Remedy and Requiem: Along the same lines, Clients may be interested in provisions in SECURE 2.0 that address how missed RMDs can be made up. The new act allows for a reduction in penalty tax (also called an excise tax) for RMDs that were missed. The law on this provision became effective on January 1, 2023. To reduce the excise tax from 50% to 25%, clients must make up the RMD within two years. They may have questions about whether the two year catch up will cover missed RMDs from 2021 and 2022.  

Finally, on RMDs, clients may have questions about how the law’s change to calculating RMD dates for a surviving spouse may impact planning, especially for clients who have significant health challenges or chronic illnesses. The new law allows the surviving spouse to elect to be as the deceased spouse for the date of the RMD requirement. This may benefit a spouse who inherits an account from a younger spouse by delaying the RMD until the deceased spouse would have reached the RMD age.

Savvy Saver’s Match: Some clients may have questions about the act’s provisions concerning lower income retirement savers. Some folks call this the saver’s match. Under the new law, lower income retirement savers will be eligible to receive government-funded matching contributions to their individual accounts (in an IRA) or in a retirement plan capped to 50% of their contributions. The cap is a maximum of $2000. It becomes effective in 2027. Clients’ concerns about their children’s lack of retirement savings may be increasing as children have less options for retirement. Having this option for a match may help direct their aid to their children from inter vivos (during life) to estate transfers.





These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

Back to Blog

Latest Entries

Need a Proposal?

Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering.  Through this examination, we can help you optimize the service you receive.

get xpress proposal