How Secure 2.0 Can Expand Your Market

What You Need to Know

Secure 2.0 was part of a big bill last year.
The bill is now a law.
Knowing a little about the provisions could help you give clients and prospects new ideas.

You might have heard about the Secure 2.0 Act; you might even be a little confused with the changes and additions to it.

In 2022, the act was part of a $1.7 billion omnibus spending bill.

In 2023, it’s now a federal law.

The act has created many new financial services provisions and changed a great deal of existing legislation, including the original Secure Act, and including many of the financial accounts you might work with, such as tax-advantaged IRAs, 401 (k) plans and Roth accounts.

Here are five of the changes affecting retirees and preretirees the most.

1. Longevity Insurance

For those clients of yours who think they’ll live beyond age 85, a qualified longevity annuity contract, or QLAC, is an arrangement that can help.

A QLAC is a special type of annuity that begins paying out when a client reaches an especially advanced age.

The maximum that can go into a QLAC has been either $135,000 or 25% of the value of the client’s retirement account value, whichever is less.

Secure 2.0 eliminates the 25% cap and increases the maximum contribution to a QLAC to $200,000, expanding access to QLACs for your clients who are concerned about longevity risk and outliving savings.

2. RMD Mistakes and Penalties

The penalty for missing a required minimum distribution, or RMD, is 50% of the amount your client should have withdrawn.

Secure Act 2.0 cuts this in half, to 25%, starting this year.

Moreover, your clients could potentially see that penalty reduced to 10% of what they should have withdrawn if they corrected the issue within a two-year period.

Of course, penalties can always be avoided by taking these RMDs when due, but you can bring some peace of mind to your clients by knowing they have this two-year period to make corrections.

3. QCDs and RMDs

Qualified charitable distributions (QCDs), allow taxpayers over age 70½ to contribute to charity from their IRAs and avoid the recognition of income on the donated amounts.

Starting this year, the current $100,000 limit for qualified charitable distributions will be indexed to inflation.

This allows the limit to increase for QCDs without Congress having to change the law again.

This can be useful as a way to offset RMDs as well.

A tip: Secure 2.0 also permits one-time gifts of $50,000 through a charitable trust or gift annuity.

4. The Lost and Found Game

Finding “lost” retirement accounts can be difficult, especially if a company has gone out of business after your client left that company.

Their retirement savings from that company, if any, could now be held with a new custodian.

5. Roth That 529

We know the benefits of a 529 education plan that allows your clients to invest money to use for college and other educational experiences.

Your client makes after tax-contributions to the account, and they can then withdraw money (including earnings) tax-free, as long as the money is used for qualified educational expenses.

It’s tempting to see those funds as being available for other things, but clients risk paying taxes and a penalty if they use the funds for those other things.

What if clients could now roll money in 529 plans that have been in effect for at least 15 years into Roth IRAs?

Are you sure Lloyd?

Yep, starting in 2024, the Secure 2.0 allows this.

Why? Because the Roth IRAs feature after-tax contributions, and that is similar to how contributions to 529 plans work.

This 529-plan-to-Roth rollover can be useful for those who don’t use all the money in a 529 plan.

If your clients created a 529 plan for their children and some of the money has gone unused, they now have an option to roll unused funds into a Roth IRA for the plan’s beneficiary.

This means they can potentially transform unused 529 funds into becoming part of their estate and inheritance planning, instead of paying penalties to access the money.

Note: The rollover is subject to annual contribution limits and has a lifetime limit of $35,000.

Use these and other provisions of the Secure 2.0 Act and open more conversations, convert more first calls and solve the problems your prospect might not even know they had, with options they didn’t even know existed.