facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Retired Military Finances 201: SECURE 2.0 Intel Thumbnail

Retired Military Finances 201: SECURE 2.0 Intel

Retirement Funding Taxes

You would think that cramming a last-minute spending bill through on the 23rd of December would be enough for the Congress. You’d be wrong. The Appropriation Bill also included what was previously known as SECURE 2.0. SECURE 1.0 was passed in 2020 and included significant changes to retirement accounts. SECURE 2.0 adds to those changes. In comparison SECURE 1.0 included very significant changes to the tax code and treatment of retirement accounts. SECURE 2.0 related changes aren’t as significant but there are a LOT of them. I’ll give you a summary of some of the changes.

Required Minimum Distributions (RMD).

The Required Beginning Date (RBD) for RMDs changed. Currently the RBD is age 72. For those born between 1951 – 1959 the RBD is now 73. For those born in 1960 and later the RBD is age 75. Many of us will need to take distributions to live on before that age. Others will have the opportunity to make Roth conversions for a longer period of time and potentially reduce future taxes (especially in the case of a surviving spouse).

Roth IRAs do not have a RBD or RMDs. That isn’t the case for ROTH 401(k)s and their cousins (403(b), TSP, 457). SECURE 2.0 changed that and now these accounts don’t have RMDs either. This significantly reduces one of the main incentives to roll Roth balances from an employer account to a Roth IRA.

Employer Plans

One of the major changes is that now your employer can make their contributions (matching and non-elective contributions) to a Roth account. That means that contributions and earnings will be tax-free when withdrawn. That also means the contributions will be added to your taxable income in the year they are made.

Speaking of Roth, starting in 2024 if you are age 50 or older and your wages from your employer in the prior year exceed $145,000 your catch-up contributions must go into a Roth account. I suppose the IRS wants your money now. If your employer doesn’t offer a Roth option, you can’t make catch-up contributions if your income exceeded the limit.

529 Plans

One objection I hear about 529 plans is there aren’t a lot of good options if you don’t use the funds in the plan for education expenses. That changes in 2024. You can transfer (directly) from a 529 plan to a Roth IRA. There are restrictions.

  • The Roth IRA must be in the name of the beneficiary of the 529 plan (beneficiary can be you)
  • The Beneficiary must have compensation
  • The 529 plan must have been maintained for 15 years or longer
  • The contributions and the earnings on them made within 5 years aren’t eligible
  • Annual limit of conversions equals IRA contribution limit (minus any regular IRA contributions)
  • Roth IRA income limits do NOT apply
  • Maximum lifetime transfer limited to $35,000

It might be worth it to open a 529 plan in your name with a small balance to keep this option open.

Dogs and Cats

  • Starting in 2024 IRA catch-up contribution limits will be indexed to inflation. If you haven’t noticed the catch up for IRAs has been at $1,000 forever.
  • Starting in 2025 there will be a super catch-up contribution limit for those turning 60 - 63 during the year. This applies to 401(k) plans and their cousins. The math to calculate the amount is a little complicated. Suffice it to say, it will be more than the normal catch-up and your employer will likely tell you how much it is. There is a similar provision for SIMPLE IRAs.
  • There are several added scenarios where you can get funds out of a retirement plan without a penalty. These start at the end of 2025. Scenarios include domestic abuse, long-term care, and emergencies.
  • They finally fixed something that really chapped my hide. If you corrected an excess contribution to an IRA by taking out the contribution and earnings, you were subject to an early withdrawal penalty on the earnings. This was true even though you are required to take out the earnings or pay a penalty. Going forward, that penalty will not be assessed on the earnings.
  • Penalties for missed RMDs have been significantly reduced.

Wrapping it Up

As with any new legislation, we need to wait for the IRS to write the regs to know all the details. Also, some of the above changes are things an employer can do but isn’t required to do so (like Roth matching). We’ll keep monitoring the changes. 

Military Finances are Different

The tax code has a lot of special provisions for Active and Retired Military Members. SECURE 2.0 even included one that helps military spouses get access to 401(k) plans. Most financial advisors/planners aren't aware of the many financial differences between an Active or Retired Senior Military Officer or NCO has compared to his or her civilian peer. That's why we think you should work with someone who deals with your issues each and every day. Use the button below to schedule a free initial consultation to find out how we help people like you.

If you found this article useful, you might like the following blog posts:

Is Your Retirement More Secure?

Retired Military Finances 201: IRS Issues New Guidance on RMDs

Retired Military Finances 101: When to Claim Social Security

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.