The Need to Know on SECURE Act 2.0

The Need to Know on SECURE Act 2.0

This week, Jon & Dave dive a bit deeper into the new SECURE Act 2.0 passed by Congress and touch on the initiatives that may affect one’s retirement goals and how to navigate them moving forward.

FIVE THINGS YOU SHOULD KNOW

1. Equity Markets – were mixed this week with U.S. stocks (S&P 500) down -0.70% while international stocks (EAFE) rose 0.69%.
2. Fixed Income Markets – were mixed this week with investment grade bonds (AGG) up 0.14% while high yield bonds (JNK) fell -0.60%.
3. Fed Officials Diverging – As skyrocketing inflation looks to begin cooling, Fed officials are finally starting to show different opinions one U.S. interest rate hike paths going forward. Some officials, including the Dallas and Philadelphia Fed Presidents, have begun laying out their case for easing the Fed’s hiking campaign, while others such as St. Louis head Bullard have stressed the need to keep policy restrictive for longer. All eyes will be on upcoming data points to determine which side gains a majority.
4. Tech Layoffs – Continued to drive headlines this week with news that Alphabet (Google) is laying off 12,000 employees, their largest ever round of layoffs, while Microsoft also announced they are cutting 10,000 jobs. Mostly cited as cost-cutting measures, big tech has now slashed 50,000 jobs in January alone.
5. Key Insight – [VIDEO & ARTICLE] This week, Jon & Dave dive a bit deeper into the new SECURE Act 2.0 passed by Congress and touch on the initiatives that may affect one’s retirement goals and how to navigate them moving forward.

INSIGHTS for INVESTORS

SECURE Act 2.0…What Does it Mean for your Retirement/Savings Goals?

Jon Heideman, CPA/PFS, CFP®

At TEN Capital, staying in the know on legislative changes coming from Washington (State & D.C.) is a vitally important part of all around wealth management and especially retirement planning. Being able to analyze the revisions or additions and conveying them to our clients is part of the ongoing education process and we want to cover and stay on top of these topics, so you don’t have to.

On December 29, 2022, the SECURE ACT 2.0 was signed into law. This is within the $1.7 trillion spending bill under H.R. 2617, or the “Consolidated Appropriations Act, 2023.” Though this bill had many non-retirement and savings purposes (and over 4,000 pages), specifically for individual accounts, there are nearly 100 changes related to various retirement/savings accounts. The original SECURE Act had substantial changes (such as removing the stretch non-spousal beneficiary IRAs), but the overall changes were around a dozen. With the SECURE Act 2.0 having nearly 100 changes, though no single change is as impactful as the original SECURE Act, there is a lot to unpack and digest over the coming years (with changes/clarifications along with the way).

The bill is still very fresh and being analyzed, but we wanted to provide five key provisions that may impact you and your retirement/savings goals:

• Increase in IRA RMD age: The age for required minimum distribution (“RMD”) from an IRA is increased to age 73 effective on January 1, 2023, and again to 75 starting on January 1, 2033. IRA owners turning 72 in 2023 would not be required to take RMDs in 2023. There are no changes for individuals who turned 72 on or before December 31, 2022, but they still may want to consider QCDs.
• Increase in QCD limit: Individuals 70.5 years old or older may use a qualified charitable donation (“QCD”) to donate up to $100,000 to qualified charities directly from an IRA. The new law indicates that the annual IRA QCD limit of $100,000 will be indexed for inflation, effective for tax years after 2023. The bill did not show any change to the current QCD age, and QCDs continue to be ineligible for donations to donor-advised fund sponsors, private foundations, or supporting organizations.
• 529 to Roth IRA Transfers: Individuals can roll up to $35,000 from a 529 account to a Roth IRA in the beneficiary's name. The 529 account must have been in existence for at least 15 years. That provision will become effective in 2024.
• Increase in catch-up limits: For those aged 50 or older, the retirement plan contribution limit is increased. For 2023, the catch-up contribution amount is limited to $7,500 for most retirement plans and is subject to inflation increases. The Act also increases the contribution amount for those aged 60, 61, 62, or 63, effective for tax years after 2024. For most plans, this second catch-up limitation is $10,000 and $5,000 for SIMPLE plans.
• Elimination of RMDs for Plan Roth Accounts: In 2024, the Act eliminates RMDs for Roth accounts in qualified employer plans beginning in 2024. This makes Roth IRA and Plan Roth Accounts the same. Also, it appears to flat-out eliminate RMDs from plan Roth accounts starting in 2024, rather than merely eliminating them only for those who would have needed to begin taking RMDs after the change is effective. Thus, those individuals with plan Roth accounts who have already been taking RMDs from those accounts should be able to stop taking them beginning in 2024.

More will come, but the TEN Team wanted to update you on what is most important as of now. Stay tuned for more updates in the future related to the SECURE Act 2.0. As always, give us a shout, we’re happy to answer any and all questions you may have!

Have a great weekend,

Jon and the team at TEN Capital

DATA, JUST THE DATA

Data points this week included:

• U.S. Jobless Claims – declined by 15K to a claimant count of 190K for the week ending January 14^th. This marks the lowest claims in four months and was way below market forecasts of 214K. This further proves the tight labor market the Fed has been trying to manage. The four-week moving average fell by 6.5K to 206K.

• U.S. Industrial Production – contracted by (0.7%) MoM in December which came in fractionally lower than November’s contraction of (0.6%). This outpaced the forecast of a (0.1%) dip and marks the lowest reading since September 2021. Manufacturing output fell (1.3%) and the indexes for durable and nondurable manufacturing declined (1.1%) and (1.5%), respectively. Overall, in Q4 industrial production decline (1.7%).

• U.S. PPI – producer price inflation dropped (0.5%) MoM in December after a 0.2% rise in November. This marks the largest monthly decline since April 2020 and shows the cooling period has set in. Goods prices fell (1.6%) thanks to lower energy costs of (7.9%). Service prices slightly rose 0.1% and YoY PPI jumped 6.2% to round out the year.

• U.S. Retail Sales – fell (1.1%) MoM in December which was slightly worse than forecasts of a 0.8% decline. Gas station sales led the way with a (4.6%) decrease, followed up by furniture sales down (2.5%). Sales for food and beverages remained flat for the month and sales rose 0.3% for building materials. This reading points to a lower-than-expected holiday shopping season and slower consumer spending.
• U.S. Housing Starts & Permits – fell (1.4%) to an annual adjusted rate of 1.35M in December, marking the lowest in five months. Multi-family housing starts got whacked by (18.9%) compared to single family starts up 11.3%. 2022 saw starts decline by (3%), which is the lowest since 2009. Building permits fell (1.6%) an annual adjusted rate 0f 1.66M.
• U.S. Existing Home Sales – declined (1.5%) to annual adjusted rate of 4.02M homes in December. This marks the seventh consecutive month of falling sales which is the longest stretch since 1999. Housing inventory came in at 970K units, up 10.2% since a year ago. The median home price was $366.9K, up 2.3% form a year ago.