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Secure Act 2.0
Episode 9624th January 2023 • Financial Life Planning • Mike Morton, CFP®, RLP®, ChFC®
00:00:00 00:17:19

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Congress’ passing of the Secure 2.0 Act at the end of 2022 provides savvy planners with many new ways to benefit from retirement savings.

Join Matt Robison and I this week as I walk through some of the changes and sprint through others to give you an overview of how this monumental piece of legislation impacts your bottom line.

  1. Required Minimum Distribution (RMD) age changes - If you were born after 1960, you don’t need to worry about that until you are 75 (it used to be 70.5, this year it changes to 72 and in the next couple of years it will reach 75. Not something you need to worry about now, but it is a benefit.)
  2. ROTH 401k Employer Contributions - Without getting into the weeds of the laws, the big change in the Secure Act 2.0 allows employers to contribute to an employees ROTH 401k as opposed to being restricted to only matching funds in a traditional 401K account. This strategy requires employees to pay the tax on the match up front, and allows that employer contribution to grow tax-free forever which could add up to a lot of money. 
  3. 529 to Roth IRA - You can now do a one-time rollover of “extra” 529 money into your Roth IRA.  Plenty of caveats abound, but it’s a great new use of found money.
  4. Honorable Mentions to be aware of in the coming months/years:

a. 401k contributions and catch-ups are increasing. As you're planning your 401K contributions, be aware of the 2023 limits, they will be increasing over time.

b. Starter 401ks for small businesses will be getting easier to implement. 

c. Student loan payments often keep people from being able to contribute to a 401k. The new law allows matching employer contributions to the 401K for folks paying down student debt. 

d. Auto enrollment for 401Ks has been expanded.

The bottom line is there are no changes that you need to make today but be aware of the Secure Act 2.0 in order to get the most out of your retirement plan.

Learn more about Mike and my services at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Are you ready to create your ideal lifestyle?  Let’s Connect.

Transcripts

Matt:

What you don't know about a bill you probably never even heard of, and why you should get smart on it right now. I'm Matt Robison. This is financial life planning the Mike Morton podcast at mortonfa.com did I get that even close to right?

Mike:

No, not even close. But you know what? No one cares.

Matt:

No one goes to a URL that's read out audibly, I just said, it sounds like I know something. Just Google it. That's what Google figured out 25 years ago. So let's go with that. All right. Mike Morton, you do want to talk about something that I have to admit. I'm a congress nerd. I'm a congress nerd. And I had not heard of this. And you are here to tell us today that this Secure Act 2.0 is something that we should care about.

Mike:

First of all that’s a complete lie, you know, you are a congress nerd. That's not a lie. And you are the one that sent me this topic. It's just that you sent it about a week ago. And so you've totally forgot it since then. And thirdly, everybody that's listening to this has heard of Secure 2.0, because it's been everywhere. Come on, people have heard of this, right?

Matt:

I ended up living in a cave I think this would be a fascinating listener poll. And if I can figure out the technology, we should put this poll right now on this show, I'm going to do this when we put this up as a YouTube video. At this moment, I'm going to put up a poll. Have you heard of this? If you have not, then keep listening, because apparently you really should probably, it involves a time bomb that's about to go off on your seat. And if you have heard of it, then you probably should keep listening. Alright, go Mike, what is this?

Mike:

Here's the thing. So the secure act, setting every community up for retirement enhancement, how's that we can all be secure. The Secure Act was passed a few years ago, the first one, about three years ago and Congress right at the end of last year passed the 2.0 version part of the omnibus, you know a lot more about this than I do. But anyway, some new rules they decided were a good idea for America, they all they got passed. And so there are a variety of details in here and here's the upshot though. First of all, nothing you have to do today. Alright, there's no crisis, there's nothing you have to run out and do today, you're gonna hear a lot more about this over the coming months throughout this year, because numbers are being changed contribution limits when you have to take RMDs and all these kinds of things are changing over the next few years. So things that you're going to be wanting to be aware of in the coming months

Matt:

RMDs required minimum distributions?

Mike:

RMDs required minimum distributions. Yeah!

Matt:

He can be taught folks.

Mike:

So right here at the front, nothing you have to do today, you're gonna find out the information as it rolls out over the coming months that is important for you. But today, I just thought we'd give an overview of some of the things so that as you hear them, or if something clicks with you, oh yeah, this is gonna be important for me that at least you've heard it. And so as you see it in the paper, and in your news feed or on this podcast, then you can tune in and pay more attention.

Matt:

Alright, so what are the headline items to keep an eye out for?

Mike:

One of the biggest ones are required minimum distributions, the RMDs. These used to be at 70 and a half? Why? Why would it be a half? Why would you have to be 70 and one half years old?

Matt:

That's oh, that's an age not a body mass? Is it age? Yeah, you reach a certain weight, you just got to get some money out of your IRA. Okay, go.

Mike:

That's right. So it used to be 70 and a half years old, they changed it to 72. And of course, there's phases and how old you are. And when you start, what if you were 71, when they made that change. So there's a little details you got to figure out that has been increased again, up to 73 or even to 75. So for you and I Matt, if you're born after 1960 you don't even know what RMDs are yet. Okay, which is fine. You won't have to know until you're 75 years old. Okay? So no big deal.

Matt:

I thought they were randomized mechanical defects. So it's like when something you buy just breaks for no reason.

Mike:

It's a random flick when this when this podcast just the blips in the middle.

Matt:

It's a raw meat diorama. It's where you decorate. Alright, go on.

Mike:

So RMDs, that's a big one for the change. And then the penalties for the changes have also come down. It used to be pretty massive. If you didn't take the correct amount, they penalize you very heavily so that it shouldn't have been that high to begin with. So that'll be coming down as well. Are you ready to create your ideal lifestyle? Let's discover what's most important to you and design a plan to have more of that in your life. Go to meet Mike morton.com all one word meet Mike morton.com.

Matt:

So it sounds like overall, that's easing things up for people who are potentially in the situation because you get to start doing it later. And if you don't get around to it, the penalty is less. Yeah, that's a good news story.

Mike:

In fact, everything in here is a good news story. It is the Secure Act Matt, making us more secure.

Matt:

Gosh, I hate the way Congress names things. There was a great one back in 2004, called the Healthy Forests Act, which was enabling logging companies to do more wood removal from protected federal lands, there was the Clear Skies Act, which allowed more air pollution. I could go on with this. The Secure Act is not even in the bottom 10. And yet, it's still absolutely, I actually can't tell you my very least favorite one. There's the way we authorize funding for our highways in America has an acronym called Safe Tea you get it? And it stands for something. It's like securing all federal whatever safety, all right, T E A Safe Tea at the time. Okay, so it had to be safety. All right. So then, because it used to be T 21. Just it was the Transportation Equity Act. All right. And then they want to talk about safety. So they had to work in the acronym, S A F E but then the chairman of the committee at the time, Don Young recently passed away Republican from Alaska. His wife's name was Lou. Guess what the name of the Transportation Act of that particular year, I think was 2006 was Safe Tea Lou, and they figured out a way to make the L and the U fit. Alright, the Secure Act. So we're more secure randomize meet distributions happen later. And if you don't, do you pay less?

Mike:

That's right. So that's one of the headlines. But there's a lot like I said before, there's a lot of details. So for listeners out there, I deal with a lot of parents mid career still working, there's a lot of little things that are going to change for you as well. All right, so if you're not on the RMD front, or retired yet, a lot of these are Roth related. So the word Roth, and when we're talking about finance, anyway means tax free, you've already paid money. And so Roth accounts, or you've already paid your taxes, I should say. So Roth accounts, that money often grows tax free, and it is tax free forever. So we really liked those kinds of accounts. Because it's 100% your money, you don't get tricked into sort of that traditional 401k, you got $100,000 in there, but you're going to owe a bunch of that to the government at certain timeframes. Okay, at certain time, but you haven't paid taxes on it yet. So there's a lot of ramification a lot of Roth stuff in the Secure Act, right. Which is just, again, great for consumers. The bottom line is going to get very confusing, so good for me and my business. But it's just like getting more and more confusing the options out there, but it is good for consumers overall. So a couple of points there. Roth 401K's will not have requirements on distributions, you don't have to take the money out, the government doesn't care because you've already paid taxes on it. So they don't care when you take it, so that's good. That's matching the Roth IRA rule. There's the other good point I should mention up front. There's no changes to existing strategies when it comes to Roth. So as soon as I said the word Roth, you might be thinking backdoor Roth, we've talked about that, using your Roth IRAs, no changes to any of current strategies that we have been using or you have been using in the past years. Okay, so that's really good news.

Matt:

That is good news. And I will say, as a public service announcement for people who follow this podcast, we've done a couple of shows, and one that's explicitly titled about backdoor Roth's really worth listening to, because they take you through all of the benefits of backdoor Roth, and how to do it. And I was surprised I found it eye opening. And I will tell you that after doing that show, I went to my own accountant and started asking him and he was like, maybe hold off because they're considering making some changes. And I'm not sure if there's going to work. So this is actually news to me, this is good news that those changes have not gone through. And I may actually take advantage of doing this show with you and restart that conversation.

Mike:

Wait, are you saying you're going to take some things that we talked about on the show and actually do something with that information?

Matt:

I take all kinds of things that we talked about in the show and do something with it. I just don't use you as my personal financial advisor in order to maintain that professional separation. But I think my accountant will be much more bullish on this strategy. So that is good news.

Mike:

And I will say this about accountants I like accountants I work with a lot of different accounts but sometimes they can be a little hesitant to do things they can be very hesitant to recommend anything because of their relationship with their clients. So that's where coming in armed with some knowledge that's why I'm not surprised to hear your counseling.

Matt:

They're response is we’ll figure this out after you're dead basically.

Mike:

Yeah. So no changes to anything that we've been doing. There's been no update, there was no legislation that's you can do this, you can't do this that people have been doing, especially when it comes to that backdoor Roth thing. So that's great. A couple other points on Roth's, they're allowing for Roth SEP-IRAs and Roth SIMPLE-IRAs. So for those that understand what those are, now, you might have a Roth option. If you don't know what I just said, don't worry about it. There are other retirement employer retirement account types, all right. But there's now Roth versions of those. But here's a big one that will come up in the next couple of months. And I will highlight it as this was just passed a few weeks ago, it's not like you can run out and make any of these changes necessarily today. All right, because they're not really implemented yet. So I just said, there's a Roth SEP-IRA, there really isn't yet, they just said, you can have a Roth SEP-IRA. And so it's up to companies to go and make that happen. But in the you know, it's now in the law, right. Here's one, that will affect a lot of people that I work with, when you contribute to your 401k, whether your employer has a match that they put in 4%, or 5%, that they put into the 401k, which is great, we always want that because it's free money. So always put in whatever your employer is gonna match, they're going to match 4%, put in 4%, because you're just doubling your money, okay? Now, whether you put that into a traditional side of your 401K, or the Roth side of your 401K, if that's an option for you at work, no matter where you put your contributions from your paycheck, the employer contributions were always in a traditional 401K so they get that 4% match, the employer puts in a couple thousand dollars it's in the traditional side of the 401k had to be that was the law, they have just changed that, that they are now allowing employers to put the employer contribution into the Roth side 401K. Now, this is an election for you, you have to pay taxes on that, because it's as if it came to you, remember, Roth means tax free forever, okay, so you have the employer will put in that $2,000 match, you'll have to pay taxes on that come out of your paycheck or whatever, but then it's in the Roth side of your 401k. And this is a pretty big change for a lot of people that will add up over the years.

Matt:

Well, and I just want to point people, once again, we don't have time in this show, and will probably be taking us too far off track to really get into all of the merits and the ‘fue de mer’ and sort of, you know, what's the best fit for people's particular situations, but I do urge people to go back because that does sound like a big one. And something that at the very least if you don't feel equipped to figure out on your own, much like I'm gonna have a conversation with my accountant, maybe it's time for you to have a conversation with your financial advisor, or, you know, your astrologer or whatever it is you use to try and figure that piece of it out. Because that's, that's a real change.

Mike:

yeah, that's a big one. And let me just highlight a few other ones Matt. And again, I think we'll do some individual episodes or mini episodes on some of these. Another one is the 529, there's a really interesting mechanism that they said, you could take money from a 529, which is savings for education, and you can put it into your Roth IRA. So you can tax remember, in the five to nine, it's growing tax free, and if you use it for education it’s tax free, they said some of that money, there are limits and other stuff, you can roll into your own Roth IRA. So in other words, if you end up with an over funded five to nine, you put in a little bit too much your kid didn't go to college, they didn't use all of it, you can take the money penalty free tax free, and roll it into your Roth IRA. So there's another little tip that we'll be talking about in coming months about the five to nine is now more useful, because people are worried about over funding that account. What if my kid doesn't go to college or doesn't use it all? Here's a way of getting out some of that money and using it in your Roth IRA.

Matt:

Wow, that is also potentially a big one. Although, like Diogenes searching Athens for an honest man, if you can find me, someone whose kid managed to not use all the money they saved as part of their college education. I will be astounded and I will give you an iPad Pro offer available anywhere. Mike, any more odds and ends that we should catch up on from the Secure Act?

Mike:

Yes, but we don't have time today. So I'll just throw them out there in rapid bullet point form, catch ups are changing. I told you these limits are changing. So if you're over 50, some of those limits are changing, they will be increasing more rapidly in the coming years. 401k catch ups are increasing. So again, as you're looking to do those 401K contributions, be aware of the 2023 limits, those will be increasing their starter 401k is for small businesses. If you're a small business owner, there's easier ways to get started with implementing 401Ks student loan payments. If you have student loans, I can't contribute to my 401k Because I'm paying off my loans. You can now get matching employer contributions As in your 401k for your student loan payments, so that's pretty cool. And auto enrollment for 401Ks have increased. So there man, there are just so many like little things, that it's been a firehose, like trying to keep up with all this stuff. But as I said, Matt, I will bring you the the useful news you can use as it rolls out here in 2023 from the Secure Act.

Matt:

Well, I think the take home for me is true. You just kind of threw that last series at us like a howitzer. But that was by design, so that if anyone caught something that's like, Hmm, that might apply to me you know, you at least have it in mind, you can hit that 15 second rewind or the 10 second on YouTube, catch it again, just make a little note to yourself. Because I think with all of these things, there are a ton of provisos quid pros, what was it the genie said, and 11 really simple rules. There's a lot of stuff that you do need. But you know, the important thing is, it's time for one of those annualized checkups that you preach about on the show, it's really time to have a conversation and revisit because there are some significant changes wrapped up in this new piece of law.

Mike:

Yeah, and as I said, the things that are important to you, you'll find them as you go. There's nothing that needs to get you to run out and do it today. But just to be aware of what's in there, and what could be useful given your situation.

Matt:

All right, well, that will wrap it up. I feel much more secure. Gosh, thanks Congress. All right. On that note from whiteboard and I’m Matt Robison we will see you next time.

Mike:

Thanks, Matt. Thanks for joining us on financial planning for entrepreneurs. If you like what you heard, please subscribe to and rate the podcast on Apple, iTunes, Google Play Spotify, or wherever you get your podcasts. You can connect with me at LinkedIn. For more Tim financial advice.com I'd love to get your feedback. If you have a comment or question, please email me at financial planning pod@gmail.com. Until next time, thanks for tuning in. This recording is for informational purposes only and should not be considered for investment advice. Opinions expressed as our have the date of recording. Such opinions are subject to change. We do not guarantee the accuracy or completeness of the data presented here.