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Jamie Hopkins of Carson Group.

Financial Planning > College Planning > 529 Plans

Jamie Hopkins on Secure 2.0: What's Overhyped, What's Interesting and What to Watch

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What You Need to Know

  • An increase to the RMD age has gotten much attention among wealth managers but will not affect retirement security, the Carson Group managing partner says.
  • Hopkins says he finds 529 plan to IRA rollovers one of the most interesting parts of the legislation.
  • Advisors should study up on the expansion of CRUTs under the law, he says.

Last week, the closely divided U.S. Congress passed its much-anticipated omnibus spending bill, and President Joe Biden signed the legislation ahead of the Dec. 30 deadline.

Much to the satisfaction of the U.S. retirement planning industry, the legislation included the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act of 2022. The Secure 2.0 framework features more than 100 individual provisions aimed at modernizing and improving key aspects of the U.S. retirement planning system.

As the advisory community digests the reforms set to take effect over the next several years, a new video summary published by Carson Group Managing Partner Jamie Hopkins highlights many of the most important and interesting provisions for advisory professionals to understand.

Starter 401(k)s

According to Hopkins, the new “Starter 401(k)” provisions could be a real game changer in the context of advisors serving small-business owner clients. Put simply, Starter 401(k)s will allow small businesses to deliver a useful retirement solution to employees while keeping both liability and costs down.

Retirement Plan ‘Lost and Found’

Additionally, the creation of a national lost and found registry and system for retirement account identification is one of the best workplace-focused changes in the bill, Hopkins says. There is a good chance that most clients who are approaching retirement have potentially significant wealth spread around multiple recordkeeping platforms from their prior employers. This new system will help people get all their retirement ducks in a row, Hopkins says.

RMD Changes ‘Not the Most Important’

In the wealth management community, Hopkins says, provisions that will extend the required minimum distribution age to 73 (starting on Jan. 1, 2023) have thus far received the most attention and praise, as has the legislation’s second pending boost to the individual retirement account RMD age to 75, starting in 2033.

“However, despite getting a lot of the attention, the RMD pushback is not the most important provision,” Hopkins says. “Ultimately, it will impact very few people and won’t change retirement security in America.”

More Interesting: 529 Plan to Roth IRA Rollovers

“One of the most interesting provisions in the whole Secure Act 2.0” is the new ability to roll unused money from a 529 college savings plan into a Roth IRA.

“While there are not millions of people overfunding 529 plans, this does give assurance to parents and grandparents who are funding a 529 plan,” Hopkins says. “Under Secure 2.0, the money can be repositioned for their children or grandchildren to become retirement savings, in cases where their 529 beneficiary goes to a cheaper school, gets a scholarship or does not attend college.”

Before the adoption of Secure 2.0, families were penalized for withdrawing unused or leftover funds from their 529 accounts. Now, families have another option other than simply withdrawing the funds and paying the excise taxes should their child decide against pursuing a higher degree — or complete their education without using all funds in the account.

Under Secure 2.0, there is a $35,000 lifetime limit on such transfers, Hopkins points out, and the 529 account will have to have been in existence for at least 15 years in order to qualify.

“Notably, the normal income limits on Roth IRA contributions do not impact this transfer opportunity,” Hopkins says.

New Charitable Planning Opportunity to Watch

Hopkins also points to key changes affecting clients’ charitable giving. As before, qualified charitable distributions can still be made starting at age 70 1/2. However, clients now have an opportunity to make a one-time $50,000 gift to a qualified charity of their choosing.

Hopkins urges advisory professionals to study the law’s provisions that speak to the expanded use of a vehicle known as a charitable remainder unitrust. Often referred to as a “CRUT,” this type of trust is an estate planning tool that provides income to a named beneficiary during the grantor’s life, and then the remainder of the trust is directed to a charitable cause. As Hopkins points out, this type of trust provides variable income to the beneficiary, based on a percentage of the fair market value of the assets in the trust.

“This will be a new planning opportunity because this stuff is complex, and these transfers are likely to require multiple years of coordinated contributions,” Hopkins says.


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