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Family Financial Planning Opportunities Made Available Through SECURE 2 Act

Family Financial Planning Opportunities Made Available Through SECURE 2.0 Act

by Philip Tull | July 31, 2023 | Financial Planning

On December 29, 2022, the Consolidated Appropriations Act of 2023, containing a section known as SECURE 2.0, became law. It builds on the SECURE Act passed in 2019, revising existing rules around retirement saving.

The legislation included considerable changes to improve the use of both ABLE and 529 accounts as well as paying off student loans through employer match programs. Families that use, or have considered using, these accounts should read and understand the changes to recognize how these changes may benefit them. 

1. Achieving a Better Life Experience (ABLE) accounts will be expanded in 2026 to allow beneficiaries with qualifying disabilities to save for eligible expenses in a tax-advantaged account. Eligible expenses can include higher education as well as basic housing and living needs. For those that may be concerned about the means-test for government assistance, note that these funds cannot be used in determining eligibility.

Today, a person’s disability must have occurred before age 26 to open an account, limiting many families that need assistance. Beginning in 2026, the limit will be raised from before age 26 to before age 46. Further noting that many military families experience disabilities later than age 26 and will now have access to ABLE account savings on the state level. 

Be sure to review your state’s specifics and rules before applying as limits and rules may vary. Total contributions from all donors to the Virginia ABLEnow account are limited to $17,000 per year, which follows the annual gift tax exclusion limit. There is a cumulative ABLEnow account value limit, which is currently capped at $550,000. However, it is important to note that any amount over $100,000 may negatively impact Supplemental Security Income (SSI) benefits. Also note that in Virginia, each contributor can qualify for an annual state income tax deduction of up to $2,000 for contributions to an ABLEnow account. That limit is uncapped if the contributor is age 70 or older.

2. Employer student loan match was another popular provision. The new legislation would allow employers to offer matching 401(k), 403(b), 457(b) and SIMPLE IRA contributions if the participant elects to pay down student loans instead of contributing to a retirement plan. This option will be available starting 2024, if the company plan allows.

3. The third change we are highlighting is the provision allowing 529 savings funds to be repurposed into a Roth IRA in the name of the beneficiary. Whereas before families would either change the beneficiary of the account to another family member or pay taxes on earnings for a non-qualified distribution. The new rules, beginning in 2024, will allow the 529 funds to be transferred and maintained in a Roth structure without penalty or tax. This will allow families to provide a helpful kickstart to the beneficiary’s retirement savings. Some of the requirements included are:

  • Roth IRA must be in the name of the beneficiary;
  • The 529 plan must be established for 15 years;
  • The lifetime amount that can be transferred is $35,000 and subject to the annual income and contribution limits ($6,500 for 2023). This means multiple rollovers would need to be completed over several years to reach the lifetime transfer limit.

You may already be thinking, “How can I capitalize on these new changes?” The door has been opened wider for new planning opportunities combined with using the 5 year front-load strategies and many others. We encourage you to meet with your financial advisor and ask how these changes may be able to improve you and your family’s financial needs and investments. If you are interested in learning more about how Tull Financial Group can help you, please give our office a call at (757) 436-1122.