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When President Joe Biden signed SECURE 2.0 Act into law in late December 2022, advisors began digesting the provisions of the legislation. The changes inside SECURE 2.0 range from new rules related to 529 college savings plans to when retirees should take their required minimum distributions (RMDs). With so much to sort through, advisors may be overlooking some of the details of the act.
To understand what most advisors are missing about the SECURE 2.0 Act, I spoke to experts in the field. Read on for my insights.
Education savings plan rollovers to Roth IRAs
One change advisors may be overlooking relates to new rules impacting 529 plans and Roth IRAs.
Beneficiaries of 529 plans will be allowed to roll over up to $35,000 over their lifetimes from a 529 plan to a Roth IRA. But it should be noted that the 529 plan will be subject to Roth IRA contribution limits. And in order to be eligible for the rollover, 529 plan account holders need to make sure their account is at least 15 years old.
This change is a “big win for 529 plans and for parents across the country,” says Brent Weiss, certified financial planner (CFP) and co-founder of Facet. “College is a major expense for all families, and expanding the use of 529 plans to allow for conversions to a Roth IRA down the road (many rules apply!) is a big positive.”
New Roth options for SEP and SIMPLE IRAs
Before the SECURE 2.0 Act became law, employees weren’t able to make nondeductible Roth contributions to Savings Incentive Match Plans for Employees (SIMPLE) IRAs or Simplified Employee Pension (SEP) IRAs. But starting in 2023, SEP and SIMPLE IRAs can both be used for Roth contributions.
“This is a big change for business owners and employees that work for smaller businesses,” Weiss says.
Student loan payments qualify for retirement plans
Employees who are struggling to pay their student loans may score fresh assistance from their employers, thanks to SECURE 2.0. In 2024, employers can opt to match workers’ qualified student loan payments when making contributions to an employer-sponsored retirement account.
Not all employers will act on those changes immediately, so it’s important for workers to reach out to their employers and encourage them to offer this plan, experts say.
“The employer has to adopt this as part of their plan, so advisors should encourage their clients to bring this up with their employers to make sure they add this provision to their plans,” Weiss says.
Bottom line
It will take some time for advisors to fully understand the ins and outs of the SECURE 2.0 Act. As they begin to study the provisions and provide feedback to their clients, talking to colleagues and experts within their firms should be one of advisors’ first steps. Advisors may also want to seek legal advice as well, says Jesse Whitsit, CFP and portfolio manager at Morgan Stanley.
“Advisors should turn to their trusted investment partners in asset management for assistance because they’ll have research and legal teams already digesting the documents to comply with the Department of Labor (DOL),” Whitsit says.
Wola Odeniran is a certified educator in personal finance (CEPF®) and a writer/editor for SmartAsset. Previously, he worked at InvestorPlace as a senior managing editor for seven different financial newsletters, including Fidelity Investor/Sector and the Independent Advisor for Vanguard Investors. He is also an experienced 3D/2D video game designer and graduated from the University of Baltimore with a Bachelor of Science degree in Simulation and Game Design. Wola is currently a member of The National Society of Leadership and Success (NSLS). This prestigious honor is awarded to only a small percent of University of Baltimore students.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
