Tag: SECURE Act

SECURE Act 2.0 and Changes to 529 Accounts

President Biden signed the SECURE Act 2.0 into law on December 29, 2022. Under certain conditions, Section 126 of the Act will amend the IRS Code to allow tax and penalty free rollovers from 529 accounts to Roth IRAs.

Under this Section, a beneficiary of a 529 account is permitted to rollover up to $35,000 over their lifetime from any 529 account in their name to a Roth IRA.  These rollovers will be subject to Roth IRA annual contribution limits, and the 529 account must have been open for more than 15 years.

There has been a decline in 529 accounts because families are worried about needing to take non-qualified withdrawals of leftover funds within the account, thus incurring a penalty. Section 126 will provide individuals with an option to make better use of leftover funds within a 529 account. Section 126 will become effective with respect to distributions after December 31, 2023.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Attorney Elizabeth M. Siefker

Elizabeth M. Siefker is an attorney at Fraser Trebilcock in the trusts and estates practice group focusing on estate planning, elder law, and business planning. You can reach her at esiefker@fraserlawfirm.com, or at 517.377.0801.

Congress Passes SECURE Act

Yesterday (December 19, 2019), Congress finally passed the Setting Every Community Up for Retirement Enhancement Act (i.e., the “SECURE Act”), and President Trump is expected to sign it. The SECURE Act was previously passed by the U.S. House of Representatives in May on a 417-3 vote, but got held up in the Senate for political reasons, even though it enjoyed virtually unanimous support there as well.

The version of the Act that was eventually passed includes only minor changes from the version that the House passed in the Spring. This legislation is the most significant change to the laws governing retirement plans since the Pension Protection Act of 2006. Among the significant changes made by the SECURE Act are:

  • Relaxation of the rules governing eligibility to participate in a multiple employer retirement plan, which will make it easier for unrelated employers to participate in the same plan (also known as “Open MEPs”).
  • Increase in the age for required minimum distributions (“RMDs”) from 70½ to 72.
  • Required retirement plan eligibility, at least for elective deferral purposes, for long-term part-time employees who work at least 500 hours during each of three consecutive years. The Act does contain nondiscrimination testing relief with respect to these individuals.
  • Relaxation of certain timing and notice rules relating to safe harbor 401(k) plans.
  • Penalty-free distributions from qualified retirement plans for births and adoptions.

These changes, and others included in the SECURE Act, will have a major impact on both plan sponsors and participants, and will eventually require plan amendments. These changes will also have a significant impact on existing and future estate plans that involve retirement plan assets. Most of the changes are effective January 1, 2020, and thus will require almost immediate changes to plan administration.

If you have any questions about the upcoming changes made by the SECURE Act, please contact Brian Gallagher at (517) 377-0886 or bgallagher@fraserlawfirm.com.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.