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Aging Issues Radio is the station that will help you age into and through retirement. We bring advice and education on all of the issues that we face as we get older, offering financial and life strategies. Hope you enjoy the subject matter and our down-to-earth and simple solutions to the problems we all eventually face. While the issues are not unique, the solutions are for you.
You are listening to Aging Issues Radio and Joe Soricelli. This is the station that will help you age into and through time. We bring advice and education on all of the issues that we face as we get older, offering financial and life strategies. Hope you enjoy the subject matter and our down-to-earth and simple solutions to the problems we all eventually face. While the issues are not unique, the solutions are for you.
Hi, Joe Soricelli coming to you live on the Aging Issues podcast. What we're going to talk about today is something that affects everybody. And what we're going to talk about is the SECURE 2.0 Act of 2022. It was actually enacted in December of 2019. But all sorts of provisions have been delayed, and subsequently, some are coming into play in 2023. So what I'm going to do is give you some of the highlights. While there are hundreds of different provisions, there are some that will affect everyone, and I chose seven to go over. Let's start.
Everybody I know that is over the age of 70 and has some money in the bank and does not want to pay taxes always has a problem when it comes to the RMD. What is the RMD? It is the Required Minimum Distribution on your qualified accounts, mostly IRA accounts. So what did they do? For 2023, they pushed it back to age 73 from 72. Eventually, it's going to go to age 75. For those individuals that need the money, it's always available; you can always make a withdrawal. But when you don't want to take the money, or you're continuing to work and it's going to be very highly taxed if you take the money, then it's advantageous to defer it. Let it keep growing! That's a key. That's a provision, and that's section 107 of the SECURE 2.0 Act of 2022.
There's a second piece to the puzzle. In addition to those people that maybe don't want to take the money, some people just didn't save enough as they were going through their retirement. So what they have done in the SECURE Act is increased the catch-up provisions, especially for those over the age of 60. You have dramatic increases, so you can add to your accounts. Now, when you talk about when you want to add to the accounts, it's usually sooner rather than later because of the compound effect. So far, what you're seeing is this act is going to help increase retirement accounts for both now and in the future.
Here's a little piece of the SECURE Act that a lot of people didn't know about or never even thought about. While it is not for everyone, a lot of people are carrying student debt. And they're carrying student debt into their later years: 30s, 40s, even 50s. I was exposed to this program back in 2016-17. There was a company that applied for a private letter ruling with the IRS to allow them to take the matching contributions on a traditional 401(k) and apply them to student loan debt. It was a complicated method. There are companies out there that promoted it. There are companies that copied it, but it's such a positive idea to help individuals dig out of student loan debt. But now it's part of the SECURE Act of 2022.
What it simply says is, if I put $1 into my plan, and the company is going to match $1, if you pay on a timely basis, your student loan, they will take that matching contribution, and apply it directly to the student loan. It's a win-win for everyone that's carrying student loan debt. It may not affect everyone, but it's a little piece of the pie that if you can first defer some money of your own into your retirement account, theoretically a 401(k) account, and then have the matching contribution help reduce your debt...tell me how that's a bad thing. If you have income to pay your student loan off, that's great, let the matching contribution go into your deferred retirement account. But if not, this is a way to turn to have student loan debt reduced.
Here's a little something that I liked. In the SECURE 2.0 Act, they put in a provision to allow employers and plans that provide an emergency savings account. While it's not going to be thousands and thousands of dollars initially--basically the contribution could be up to $2,500--it will accrue so that if you have that unexpected expense, rather than going into a credit card and carrying that balance if you're if you are working close to the limits, what you will be able to do is draw down upon a emergency savings account. It's going to work a lot like a Roth, so any gains in the emergency savings account will be completely tax-free. Once again, for the right individuals, it's a win-win. It gives you immediate access as a youngster, and I'm gonna say "a youngster," not age 59-1/2 or anything else, and they did change certain requirements for distributions. But more importantly, I'm 35 years old, I just bought a house--what happens if the boiler goes? I usually have to use credit cards to pay for it for major repair. Well, that's what this emergency savings account is going to be for: unexpected expenses, an emergency.
Here's something that is a provision that is very familiar to a lot of people. And what I mean by being familiar to a lot of people--I live in New York and I work out of New York--two or three times a year, the state publishes a list of unclaimed funds. There are websites that you can go on to that will republish this list and help you narrow it down and look at it. But my children always come up to me and say, "Dad, are we related to so-and-so? Maybe we have a claim." Or, in my own individual case, I had changed addresses and a commission check went to an old address and was never forwarded. It became an unclaimed fund from the insurance company. I had to go through the process to claim it. And eventually I received those funds.
Well you know something? In this day and age, a lot of people change employers. And a lot of employers have automatic enrollment provisions, all sorts of provisions that will automatically have you participate in their retirement plan. It could be as simple as a profit-sharing contribution that you were you were eligible for. So all of a sudden, you may have this retirement account that you're not even aware of, or maybe lost track of. Well, going forward, the government said we're going to create a retirement savings lost-and-found to make it easier for participants to locate orphaned accounts.
It's not happening yesterday; it's going to take a while to develop. But from working with pensions, there's always a list of people they cannot find. So two things: number one, the government's creating this master list and number two, it's making it easier for pension plans when they can't find a participant with a small balance, and even sometimes a larger balance. They can put the person into this plan, into this list, and potentially change expenses, but basically remove some liability for distributions. It's really important to know, because when and if you want to close a pension plan, you've got to be able to distribute all the money in it. And this is a provision that now is allowing the government to pretty much take over these accounts. So that's a great, great little add-on.
Something that a lot of people are always interested in is: How come I'm making a Roth contribution to my 401(k)? And again, those individuals that understand that the Roth is a truly tax-free vehicle going forward; you're taxed on the funds that you put into it initially, but on all the accrual, it's not taxable. And you don't have to take it; it has to be distributed upon death. RMDs, other than for certain individuals that are still participating in pension plans, there may not be a required minimum distribution. Everybody was concerned that I'm making this dollar contribution to my Roth, and the dollar that's being matched had to go into a traditional 401(k). Well, while not requiring, but now the provisions allow that matching contribution to go into a Roth account. Big, big plus.
These are some highlights. This is not all of them; the actual act goes into the 300 series of sections. So there are so many different pieces. But what I wanted to bring to you were the pieces of the act that really affect the day-to-day person, not the pension administrator, not the plan trustees, but what affect us. And the further deferral of RMDs, I can't explain how valuable it is to many clients. The opportunity for increased catch-ups, again, I can't explain how valuable it is. For the individuals that have student loans, this new provision, if it can be enacted--now, every plan doesn't have to do it--but if it can be enacted in your plan, once again, tremendous, tremendous opportunities.
So what you have to understand is, the provisions that I talked about, in most cases, are effective immediately. But they also have to be put into the plans, in some cases. The plans have to be amended to include these provisions. So while effective dates will vary, and sometimes they are--by the writing of the document--deferred, it is something that you need to look at; you need to talk to an advisor. Because while COVID had an effect and a lot of the provisions were pushed out to 2024 and beyond, because they just couldn't be enacted, there's going to be a very orderly and efficient implementation of the new provisions, because they're just so positive. These reforms are something that you need to consider, you need to look at.
So, what I'm going to ask is, if you have other questions about the SECURE 2.0 Act, give us a call. I am available at 914-468-0186; you can email me at joe@agingissuesinfo.com. I'm going to give you information; we're not going to talk sales. We're going to talk about the SECURE 2.0 Act and some of the provisions. Any questions, feel free to reach out.
You've been listening to Aging Issues Radio and Joe Soricelli. This podcast has been for informational and educational purposes only. It is not to be construed as financial or legal advice specific to your circumstances. If you need help with any matter, be sure to consult with an advisor regarding your specific needs. Thank you and tune in again.