On This Episode
After being discussed in Congress for nearly a year and a half, the SECURE Act 2.0 passed in January. Listen to today’s episode to see what you need to know and learn four ways the new changes might impact you.
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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.
Here is a transcript of today’s episode:
Marc: Welcome into another edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. We’re going to tap into the SECURE Act 2.0, a couple of items you might want to be aware of if you’re not and four ways that it could impact you. They went ahead and got this passed at the very, very end of 2022, right before the Christmas break, and some more changes coming down the pike. A lot of changes really in the SECURE Act, but we’re going to touch on some of the bigger ones today. There’s a lot of little nuance, so if you definitely have questions around it, absolutely make sure you’re talking with your financial professional or reach out to John and Nick and have those chats with them at pfgprivatewealth.com. Nick, what’s going on buddy? How are you?
Nick: Doing pretty good. I can’t believe it’s already almost February.
Marc: Yeah, at the time we’re taping this, it’s like a day away. So we’ll be dropping this first week or so of Jan… or February, excuse me. Yeah, time is moving quickly, so, for sure. John, what’s going on with you, my friend?
John: Not too much. Doing all right. Looking forward to… Nick’s probably not looking forward to this, but the upcoming Super Bowl. Two good teams.
John: So looking forward to checking out those quarterbacks go at each other.
Marc: Yeah. Yeah, it was an interesting playoff season, for sure. So not the result I was looking for either, Nick, but all good. So…
Marc: It is what it is. But let’s talk about some of these changes, guys, because they did a ton of them, but I want to touch on some of the bigger ones and any other ones you feel are important you want to touch on as well. But like I said, right there before Christmas, literally like the Friday before Christmas, they went ahead and passed this as part of that omnibus bill, all sorts of stuff in there. And they went tinkering around with some more things. And the first one on the list that might affect most people is the RMDs, the age. They changed it again. So you can give us a little backstory if you’d like from how you want to go, with whatever angle you want to go in, but explain to us what they did.
Nick: Sure. So for many years, the RMD, or required minimum distribution age for pre-tax retirement accounts was 70 and a half. And at least… I was just personally excited when they got rid of the half year, because why in the world did they have it in the first place?
Nick: But so in early 2020, they pushed it back to age 72, so people picked up about a year and a half. And now, for anyone born between 1951 and 1958, the starting age is 73, so they bumped it back one more year, and for those born in 1959 or later, the age is 75. So from a standpoint of impact for people, there are… I would say, a big chunk of people out there are taking withdrawals from their retirement accounts, and the amount that they’re taking is pretty close to their RMD amount that would be required anyways. But for those that aren’t, it gives them more time to defer funds, let them continue to compound. And from our side of things, it kind of just lets us be a little bit more strategic on creating a liquidation order and helping clients figure out which accounts we should start taking withdrawals from when. And this just builds in more flexibility, which is nice.
Marc: Yeah. So overall, do you kind of like this concept of them pushing this back a little further? I mean, either way, to me, it feels like it works for them to get more tax revenue, right? Because either the accounts get bigger and they get more RMDs you have to pay taxes on, the government will get their share, or people are doing Roth conversions, they have more time to plan for something like that, for example, and they’re getting tax revenue that way. So either way, to me, it seems like it’s a win-win for them.
Nick: Yeah. And realistically, yeah, I think just in general, people don’t like to be told what to do. So anytime, from looking at it from a client standpoint, just to know that there’s flexibility, because I can say that I’ve had more than one and probably more than 10 clients be unhappy when they realize that requirement distributions are a thing to only realize that they were taking the money out anyway. So it’s just literally the psychological impact of choosing to do it versus being forced to do it.
Marc: Okay. All right. So that was one big change that they did. John, let’s talk a little bit about the special catch-up contribution. Give us a quick breakdown on normal catch-up contributions, something that happens all the time. They change the numbers from year to year, what it is, but then also this new little wrinkle they added, and let’s get your thoughts on that.
John: So normal retirement contributions are what the normal limits are for 401k. Whether you’re going to make a contribution or not to it, you do max out. And what is the current [inaudible 00:04:43]
Marc: 22,500, I think.
John: … up as well.
Marc: Yeah. Yeah, I think it’s 22,500 for the current-
John: Yeah, so 22,500 is kind of normal. Catch-up provision is once you’re over the age of 50, you’re able to actually do an additional amount, which they consider, hey, catching up for basically your retirement. So for 2023 it’s going to be 7,500, which is a nice jump from last year. What makes it even better is anyone between the ages 60 and 63, starting in 2025 can be up to about $10,000. So that is really significant. And why that is, we found a lot of people, when they get into their fifties, they’re kind of in their highest income earning years. So it really comes up quite a bit where it’s like, hey, I want to save more money, but I’m really limited in what I could do. So this is really going to help people defer more for retirement, which ultimately in the long run helps them overall have a larger nest egg and more retirement income.
Marc: Yeah. And so it’s interesting what they did that. So yeah, they moved it on, they added this extra four year thing. So again, what’s your thoughts on that? It doesn’t kick in until 2025, but do you think that’s a useful tool to add even more room for people to sock away?
John: Yeah. I think anything that encourages people to save is definitely a positive for retirement.
Marc: Yeah. So what’s your thoughts on that, Nick?
Nick: Yeah. I mean, again, it’s one of those things where when you add in flexibility and the ability for people to kind of adapt, especially knowing how many 401k plans allow for Roth contributions now. So even if it’s from the perspective of, hey, maybe they don’t want to add more pre-tax money, but they want to take advantage and use some of that buffer for Roth funds, it’s just nice to have the flexibility and ability to be able to put in more funds.
Marc: Yeah. Okay. An interesting one that caught a lot of people off guard, guys, especially a lot of advisors, was the 529 to Roth transfer option. So let’s talk a little bit about that. That’s been a kind of nice little wrinkle. People have been pretty surprised by this.
Nick: Yeah, this is interesting from a perspective… So for those that aren’t super familiar with 529 plans, they are essentially education accounts, and there are funding restrictions. And one of the, in theory, downsides on 529 plans previously were the way and the timing of when you had to use the funds. And so essentially, using funds in the years that costs are incurred, there were some ability to be able to transfer funds from one person to another. But now, essentially what they’re doing is they’re kind of reducing the quote, unquote risk of overfunding a 529 plan, and they’re letting people essentially use 529 funds to make Roth contributions when they start working. So as a reminder for people, to be able to contribute to a Roth IRA, there has to be earned income. So when there’s earned income, you can contribute up to a hundred percent up to of the earned income, up to the maximum amount. And then there are income limitations and restrictions on how much you make versus how much you can put in. To be honest, realistically, this is probably going to be something that is much more tiered towards higher income earners. Definitely the kind of, maybe there’s grandparents that have a significant amount of money and they can overfund a 529 plan for a grandkid, and it can be a way to essentially start to kind of build in some future wealth transfer, which is cool, to be able to have a creative way to be able to do that. Most likely, that’s how I see it playing out overall. So it’s just nice to have that flexibility. And I was pretty surprised as well that it was something that they came up with to integrate into the plan.
Marc: Yeah. So if you wind up not using it, maybe you got the one kid that doesn’t use it or you’re going to give it to the other kid or you don’t have a second kid, it just gives you options. I mean, other people still looking at different ways to fund for college, but it’s nice to have that extra wrinkle in there. So a lot of people have been fairly pleased and surprised by that one. John, any thoughts on that from yourself since you’ve got a couple of little ones?
John: Yeah. Yeah, I think I like this. Because one of the things that I’ve always thought about is let’s kind of take off the table overfunding, but what if they don’t use it at all? What if they decide to go a different route from traditional college or what if they get a ton of these grants and things like that? So I think it’s a nice feature. Kind of puts a little peace of mind where it’s like, hey, if they don’t end up using it and you try to just pull it out, you get hit with these taxes and penalties on the growth. So I think it puts my mind at ease a little bit more knowing, hey, if I contribute to this, that it’ll still be going to them and they’ll still be able to benefit even if they don’t use it for school.
Marc: Yeah, definitely. All right. So let’s talk a little bit about the other changes kind of addressing, I guess, maybe students if you will. And there’s a lot of changes that they did, guys, to just, I think in general, company-sponsored plans, a lot of little nuances. Again, you may want to talk with your financial professional to see. They did some little things like moving, I think, Roth options right now, so matching contributions can go to a Roth, and lots of little stuff. So you may want to have those conversations. But let’s talk about the changes to the company 401k match, especially for younger folks. I think this was maybe to address the whole student loan debacle and all the conversation that’s going on about to forgive, not to forgive, whatever the case is. So explain a little bit what they’ve done with this. Whoever wants to take this one.
John: Yeah, I’ll start with it. So yeah, I definitely agree with you there, Mark, on kind of throwing this in there to help with what we have going on with the student loan issue there. But this is pretty cool in my opinion. I got a younger sister-in-law, and she’s got… law student, hefty amount of student loans. So we were talking about some different things and we talked about helped her out with picking some stuff in her employer plan. And it came up to this, and this exact conversation came where she said, hey, I’m paying such a big amount on my student loans. I don’t have any extra really to save for retirement. So this is a great way, in my opinion, to try to… That way they can get something going to the retirement account because, as you know, Nick and I do planning for people, there is sometimes a shortfall and the earlier you can start the better. So I think this is definitely a great way to get people to at least get the money into the retirement accounts, and ultimately, when they have the cash flow, they start to see what their match is doing and growing, I could see them starting to contribute themselves a little bit more as well.
Marc: Yeah. What’s your take on it, Nick?
Nick: The student loan burden is so significant for so many people, and that’s separate… The whole validity of it and does it make sense and all that kind of stuff, I think, is a separate conversation. And so the reality is that there are a ton of people living with that, and so anything that can be done to provide some sort of options and flexibility and encourage employers to assist with that, I think, is a big deal. Because ultimately so many employers, they are looking to have these sorts of certain certifications, certain underlying education requirements, all that kind of stuff.
Nick: So they’re a participant in kind of the machine, so to speak. So to me, it makes sense to integrate some kind of creative thinking into it.
Marc: Okay. Well, so that’s some of the major changes. Anything else I missed, guys, you want to bring up? I know like with the RMDs, little things like they reduced the penalty, which was a pretty hefty penalty even though a lot of times I don’t think they enforced it. Any other little items that you want to share?
John: No, I think these are the main ones that are good. And like you say, always if people have any questions, definitely reach out to us. And as we’re meeting with clients, if something pertains to them, we always bring up kind of what makes sense for them.
Marc: Yeah, okay. All right. Well, there you go. So some major items there that they updated when it came to the SECURE Act 2.0. There’s no really big gotchas, it doesn’t seem, like there was with the first one with the removal of the Stretch IRA, for example. That one seemed to be annoying for a lot of advisors and stuff like that. Any big gotchas here that you feel like that’s make it a real concern? Or for the most part overall some decent changes?
Nick: Not that I’ve seen so far.
Marc: Yeah. Okay. Yeah, you never know, right? I mean, they still got, I mean, what is this, 10 years on some of this stuff? Some of the stuff starts in ’23, some of it ’24, some of it ’25, some of it 2033. So they got a while to roll some of this stuff out, so we’ll see how it all plays out. But if you’ve got questions, again, make sure you reach out to the guys, have a conversation. Don’t forget to subscribe to us on Apple, Google, Spotify, all that good jazz. And you can find all of that information at pfgprivatewealth.com. That’s pfgprivatewealth.com. Guys, thanks for hanging out with me. As always, appreciate your time for John and Nick. I’m Mark. We’ll see you next time here on Retirement Planning Redefined.