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College Savings, Retirement Plans, and SECURE 2.0

College Savings, Retirement Plans, and SECURE 2.0

| January 18, 2023

A new law is set to change the way we plan for retirement – and especially the relationship between your prepaid tuition plan and your Roth IRA.

Last December, Congress passed an omnibus spending bill that the president signed into law. Its many provisions included a bipartisan push to make long-term saving easier. Dubbed the SECURE 2.0 Act of 2022, the new law tweaks the rules for retirement accounts – both for employees and small-business owners – and offers new ways to hedge your savings against the unexpected. But it also changes the way a 529 plan, also known as a prepaid tuition plan, can help you or your loved ones plan for retirement.

From College to Retirement

The new law makes it possible to make limited tax-free transfers from a 529 qualified tuition account to a Roth IRA account. If you’ve maintained a prepaid tuition plan for 15 years or longer, then starting on December 31, 2023, funds from that plan can be rolled tax-free into a Roth IRA plan in the name of the 529’s beneficiary. There are some caveats. These transfers can’t be larger than any regular contributions made to a traditional IRA or Roth IRA for the year. There’s a lifetime cap of $35,000 that can be rolled over from a 529 into a retirement plan like this. And the rollover can’t be larger than the aggregate amount contributed (plus earnings) prior to the five-year period that ends on the date of distribution.

If you need help figuring out if this provision can prepare you or your loved ones for a more secure future, please consult with a trusted advisor. There are other changes to the rules surrounding retirement planning to consider as well.


Matching Student Loan Payments

For graduates making payments on student loans, putting something away for the future can be especially hard. Starting in 2023, private-sector employers are now permitted (though not required) to make matching contributions to a 401(k) plan, 403(b) plan, or SIMPLE IRA. Governmental employers can also make matching contributions in a section 457(b) plan.


Raising RMD Age

If you’re of a certain age, you’re probably already all too aware of the annual required minimum distribution (RMD) from your IRA. In 2022, you had to start withdrawing a certain amount from a retirement account every year once you’d turned 72. In 2023, you don’t have to start taking RMDs until age 73, and that age will rise to 75 on January 1, 2033. The penalty for failing to take that RMD is also dropping from 50% to 25% of the amount that should have been withdrawn.


Emergency Planning

Employers can now help workers prepare for surprises by offering pension-linked emergency savings accounts.  The account is meant to provide a buffer in case of personal or family emergency expenses, and is only open to workers who aren’t considered highly compensated employees. If you qualify, your employer can automatically opt you into one of these accounts at no more than 3% of your salary, with contributions capped at $2,500 (or less, if the employer so chooses). The cap also serves as the maximum account balance. When an employee moves on to a new position, these emergency savings accounts can be rolled into an IRA or taken as cash. 

From 2023 on, a separate provision of the new law also makes it possible, once per year, to withdraw up to $1,000 from an IRA for personal or family emergency expenses without having to pay the usual 10% early distribution penalty. You’ll have the option to repay the distribution within three years and won’t be allowed to take further emergency distributions during the three-year repayment period unless the fund has been repaid.


Starter Ks

If you’re an employer and you’re not currently sponsoring a retirement plan, you can now get a boost to the startup credit for sponsoring a new starter 401(k) or 403(b) plan. You'll have to enroll all employees in the new plans by default (with the choice to opt out), at a deferral rate between  3% and 15% of their paychecks, up to an annual limit of $6,000. Employees at age 50 and older can raise that limit to make an additional $1,000 in catch-up contributions.


Catch-up Contributions

Anyone age 50 or older can now make extra "catch-up” contributions into retirement accounts, depositing more than the usual maximum in order to get the greatest tax benefits and set aside as much as possible, “catching up” to savings they wished they’d set aside earlier. Beginning in 2025, people between the ages of 60 and 63 will be allowed to make catch-up contributions of up to $10,000 or 150% of the regular contribution, whichever is greater. (And that amount will be indexed to inflation, so might rise if the savings situation demands it.)


Matching in Cash

Federal matches for IRA and retirement deposits have previously shown up as a tax refund. Now, they’ll be paid as an ordinary deposit straight into a taxpayer’s IRA or retirement plan, matching 50% of your retirement contributions up to $2,000 per individual. The matches do depend on whether you file taxes as single, married filing jointly or separately, or as head of household. Because calculating and setting up direct deposits to so many retirement accounts can be complicated, lawmakers gave the government until 2026 to start the new Saver’s Match provision.
These are just highlights – there are plenty of other ways SECURE 2.0 affects your savings. If you want to know how all these provisions can change your savings strategy, please speak with one of our advisors.




For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice. Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing. Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state’s 529 Plan.



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