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What Does the Secure 2.0 Act Mean for Retirement Planning?

In recent years, Congress has continued to push for changes to retirement accounts as they look for new ways to encourage retirement saving and create tax streams for the budget. Most recently, that includes the Secure 2.0 Act.

The Secure 2.0 Act was passed by Congress and signed by President Biden in the final days of 2022 as part of the 2023 Federal Omnibus Bill. The omnibus bill was more than 4,000 pages, included $1.7 billion in spending, and builds on the original Secure Act of 2019, which was the first major change to retirement plans in several years and opened the door for continued retirement plan discussions.

In the Secure 2.0 Act, there are dozens of changes that could affect retirement savings going forward. Here are some of the ones we believe are particularly important:

READ — Mapping Out Financial Success with Retirement Planning

Changes to Required Minimum Distributions (RMDs)

The 2019 Secure Act increased the RMD age from 70.5 to 72, which is the age retirement account owners are required to start taking distributions from retirement accounts. The Secure 2.0 Act took this another step and increased the RMD age to 73 years in 2023 and will eventually move this age to 75. 

The Secure 2.0 Act also removes the RMD requirement for employer retirement accounts that allow Roth contributions. This essentially treats Roth dollars the same whether they are in an IRA or an employer-sponsored retirement account like a 401(k). 

What this means for retirement savers:

By increasing the RMD age and removing the RMD requirement in employer retirement accounts, savers will be allowed to delay distributions and the corresponding taxes on these distributions. For retirement account owners who can afford to push back distributions, there may be opportunities to strategically plan out distributions during lower-income years prior to the start of RMDs. 

529 Plan Transfers to Roth IRAs

For years, individuals have been using 529 plans to save for their children and grandchildren’s education expenses. Occasionally, they save too much and wonder what to do with the excess funds. Currently, distributions from 529 plans not used for educational expenses are subject to income tax and a 10% penalty. The Secure 2.0 Act allows savers to rollover these dollars to a Roth IRA for the benefit of the beneficiary. 

What this means for 529 savers and beneficiaries:

If several conditions are followed, the 529 beneficiary (typically a child or grandchild) will be allowed to rollover up to $35,000 from the 529 to their Roth IRA during their lifetime. 

READ — Choose Your Own Adventure: What’s Your Investment Path?

Increased Catch-up Contributions for Retirement Accounts

Catch-up contributions to retirement accounts have been around for decades to allow savers 50 years and older to put additional savings into their retirement accounts. Secure 2.0 Act made a few changes to this process. 

What this means for retirement savers:

  • In 2024, retirement savers in employer plans such as a 401(k) or 403(b), who are aged 60 to 63, will be allowed to increase their savings beyond the normal catch-up contribution. 
  • Under prior law, catch-up contribution limits were indexed to allow them to grow with inflation – except for IRA catch-up contributions. Secure 2.0 Act addressed this exception to allow inflation adjustments for the IRA catch-up limit as well, which means that the $1,000 catch-up contribution will be annually increased in $100 increments to match inflation.

Catch-up Contribution Change for High Earners in Employer Plans

Starting in 2024, catch up contributions will be handled differently for high-wage earners, who are defined as those making $145,000 or more with their employer in the prior year. This amount will be indexed to correspond to inflation. 

What this means for high earners:

For high-income earners in employer retirement plans such as 401(k) and 403(b), catch-up contributions will be required to be made to the Roth portion of their plan. In the past, catch-up contributions have always been made in tax-deferred dollars for all employees. 

The Roth IRA catch-up contribution rule is an attempt by the Secure 2.0 Act to increase tax revenues by ensuring contributions to Roth accounts are included in taxable income for the participant. It should be noted that not all employer plans allow Roth IRA contributions. 

New Option for Surviving Spouse Beneficiaries

Currently, the surviving spouse has many options when they are named as the beneficiary. The Secure 2.0 Act adds an interesting new option to allow the surviving spouse to elect to be treated as the deceased retirement account owner for distribution options. 

What this means for the spouse beneficiary:

This appears to allow the surviving spouse to delay distributions until the deceased participant/owner would have reached RMD age. This could enable strategic distributions during lower-income years and potentially save tax dollars. 

The Bottom Line

These are just a few of the changes we believe to be the most relevant to retirement savers, but the Secure 2.0 Act has many other provisions that will affect retirement savings and will be important to monitor closely.


Josh HahnJosh Hahn is a senior vice president and manager of trust administration at UMB Bank. He is responsible for providing leadership, supervision, coaching and long-term training for a team of trust professionals. He also provides leadership in connection with the fiduciary administration of all aspects of accounts, including probate estates, custody, agency, IRA and other assigned accounts. Hahn has been with UMB since 2000. 

How much is enough when it comes to retirement savings?

No matter how much attorneys love their jobs and the clients they serve, most are looking forward to retirement one day. Their retirement dream may be as simple as sleeping late or riding a bike on a sunny afternoon, or something more adventurous such as traveling the country in an RV or as daring as skydiving at age 90. 

What’s essential is saving now and saving enough. This way, the money won’t be a concern when retirement dreams can finally come to fruition.  

How Much Retirement is Enough? 

Determining how much to save for retirement can be tricky. Many financial advisors and other economic experts advise that most Americans will need between 55 and 80 percent of their pre-retirement income when they retire if they want to keep their current lifestyle. 

One quick rule of thumb is to save at least 15 percent of annual pre-tax income for retirement, including any employer match. Assuming this amount of annual savings between the ages of 25 and 67 when combined with other steps can help ensure attorneys have enough to maintain their current lifestyles well into their retirement years. 

Another way to quickly calculate how much to save for retirement is using the 25x rule. Consider that to stop earning new income, it’s necessary to have 25 times the amount spent annually in retirement. Here’s how to figure that out. 

To calculate this: 

  1. Begin with thecurrent monthly budget. 
  2. Multiply by 12 to getarough yearly budget (if the plan is to keep spending at the same pace). 
  3. Multiply theyearly budget by 25.

Retirement as an Attorney 

Retirement as an attorney can look different than retirement from other professions. One survey revealed that in law firms with mandatory retirement: 

  • 38 percent mandate retirement at 65 
  • 36 percent at age 70 

Even still: 

  • 27 percent of lawyers plan to retire early 
  • 29 percent plan to retire at retirement age 
  • 29 percent plan to retire later 
  • 11 are unsure as to when they will or want to retire 
  • 4 percent don’t plan to retire at all 

In fact, 61 percent of respondents plan to continue working in some capacity after retirement; 48 percent in the legal field. Some attorneys work to maintain an income or keep their minds sharp, and still others because they want to stay busy and enjoy what they do. There are many options for attorneys who desire to keep working well into their retirement years. They may work as legal consultants, professors, writers, or even take on completely different career paths.  

Planning for the Unexpected 

Just like other matters in life, it’s crucial to plan for the unexpected when it comes to retirement planning.  

Early Retirement 

Some attorneys end up taking early retirement—be it due to a lucrative retirement package or health concerns. For those who think an early retirement might be in their future, the following steps are worth considering: 

  • Increasing retirement savings by 10 to 20 percent 
  • Living on 50 percent or less than current income and saving the rest 
  • Learning about other income streams accessible after retirement 

Other Considerations 

Retirement is often best planned for in conjunction with other possible life circumstances. For example, what happens to retirement accounts or saving for retirement if someone has a long-term sickness? Will they need retirement care? Is there an insurance policy in place for retirement care? 

Will they still have financial dependents at the time they reach retirement age? If so, how will they provide for them? Will their retirement savings be enough, or should they be calculating that into the equation for saving now? 

Questions about Retiring as a Lawyer? Contact a Wealth Advisor 

In general, attorneys do a good job of saving for retirement. The Economic Policy Institute (EPI) estimates that the mean average retirement savings in the United States is $95,776. A source from ABA Retirement reveals that the average law firm 401(k) account balance is more than double that sum. In fact, several well-versed law firm partners have even worked their way up to seven-figure retirement savings accounts. Maybe you want to be on par with this or already are. Either way, there’s always room to improve when it comes to retirement savings. 

Contact a wealth advisor if you aren’t sure you’re doing enough to save for your retirement dreams and ambitions or if you simply want to know what more you can do to increase your retirement savings. They can assess your current retirement savings to determine if you should be saving more or what more you can do to maximize what you are already saving.

A financial advisor can also help you with any special considerations—such as planning for early retirement or planning to care for a dependent into your retirement years. Reach out today to learn more. 

Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area. 

Tips for using your current retirement fund to start a business

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Now is an excellent time to start your own business. The world is far more connected than at any other time in history — this opens you up to a potential global audience of consumers, not to mention access to knowledge and advice from successful entrepreneurs through your social media channels.

Yet, one issue that persists for any startup is understanding how you can actually go about funding it.

Capital can be hard to come by, particularly in uncertain economic times. However, one option many people overlook is the potential of their retirement savings. You might think that this is a rash move, particularly if you’ve built up enough that your retirement is now all set, but many people are taking the view that this is another way to positively invest those funds toward a brighter future.

Let’s review some tips that can put you on the most positive road to utilizing your retirement assets, along with some key aspects that it’s important to consider.

Weigh the Risks 

Before you dive in and start using your hard-earned retirement savings to start a business, it’s important to gain a better understanding of what you have at your disposal. If you’ve been employed for a while, you are likely to have a 401(k) — this is the retirement savings account that your employer will have contributed to.

Although, Colorado recently passed a law that required employers to put a percentage of workers’ salaries into an auto-individual retirement account (IRA) unless the worker opts out, so you may have one of these too.  

Both of these plans are designed to accrue non-taxable interest to provide you with a retirement fund, and both can be withdrawn from. If you’re over 59 ½ years old, you can usually do this without any problems and utilize as much of the value toward your enterprise as you’d like to. However, if you’re under 59 years old, you’re likely to incur penalties if you withdraw from your 401(k) — the Internal Revenue Service (IRS) takes a significant chunk of your savings.

 You’re able to roll over funds from one retirement account to another without such issues, and you’ll still retain your compound interest. When you withdraw, you have immediate access to some of your funds, but with tax penalties and loss of interest, it may not be as much as you might think.  

As such, some entrepreneurs utilize a method in which they create a corporation and then start a profit-sharing retirement plan for that corporation that allows 401(k) funds to be used to buy company stock. This lets you roll over your previous 401(k) to the new company plan and immediately invest it in stock, providing you with capital.

It’s more complex, but it can help you avoid the losses you are likely to incur by simply withdrawing. There are still risks involved, but it gives you another option to consider.  

Don’t Rush Into It 

One of the dangers of utilizing your 401(k) or IRA is that it can very much appear as though you have this little treasure trove of cash at your disposal. However, you also have to bear in mind that these are future pension funds, and while you are free to put your retirement money wherever you wish, withdrawing everything at once can be something of a gamble — you’re betting a certain amount of future financial stability on your ability to create a successful business. On top of that, there’s a fair amount of misguided information circulating regarding pension plans and the transfer and use of them. Therefore, it’s important not to rush into a withdrawal and treat the situation with the seriousness it warrants.   

Take time to research your options. Different retirement plans have different rules, and your ability to withdraw from a 401(k), in particular, can depend on the plan your employer has put in place. Rather than lose your retirement fund entirely, you may be able to take out a 401(k) loan against it.

In the case of an IRA, if you’re under the age of 59 and don’t need a lump sum to start your business, you may find it more prudent to arrange substantially equal periodic payments (SEPP), which see you receiving your funds in smaller, regular amounts and also avoiding withdrawal penalties.    

If this sounds like a complex situation, the truth is that it certainly can be. This is why one way to avoid making mistakes is to get advice from your employer or fund provider’s benefits manager.

These are professionals who have the expertise to navigate the legal and taxation aspects of your retirement fund, and in some cases may even have had a hand in creating the company benefits scheme you’ve been paying into.

As such, they are best qualified to give you impartial advice on the status of your fund and clearly communicate what your options are. They are a useful resource, and it’s worth utilizing them before making any decisions.   

Make a Solid Plan 

A good business plan is essential for any enterprise. But the imperative is perhaps more pronounced when you are planning to use your retirement funds for your own capital. After all, the biggest risk here is your business could fail and you’d be left with no retirement nest egg. Therefore, you’ll want to make sure that your business plan is as watertight as possible.  

Really consider whether your startup needs the bulk of your retirement savings immediately. Review what elements you’ll need to invest in, and see where you can minimize, or take your initial growth in stages.

This may make it more practical for you to withdraw a small amount (either directly or following a rollover) from your fund initially and leave a portion of it intact. One of the primary areas you need to focus on in this case is your cash flow.

Create a plan that gives you a framework to invest your minimal withdrawal and how the income you generate can go toward funding the next phase of your growth, rather than relying on another withdrawal from your fund.

This treats the remainder of your 401(k) or IRA as a backup, rather than the primary source of capital. 

New businesses need capital, and one of the options at your disposal is your retirement fund. However, it’s important to gain a full appreciation of the risks and methods involved and seek professional advice where needed.

It’s a big decision, but with some careful planning and good research, it can help make your entrepreneurial ambitions a reality.    

Did you lose your job?

You are planning to leave your current employer. Maybe you’ve lost your job or are making a voluntary job change. Maybe you’re ready to retire.

You may have a 401k and are needing to figure out if you want to leave it in your current plan, rollover the balance to an IRA, or take a withdrawal and pay taxes now.

This may seem like a straightforward decision. Rolling over your 401k is the obvious move, except that perhaps it is not. Maybe rolling it over isn’t the answer. Each option has pros and cons and mistakes could be expensive.

A number of significant issues call for consideration when making this decision. Some of those include:

1. How old are you? If you’re retiring or have lost your job, you may need access to this money before 59.5 years-of-age. If you’re at least 55, 401k plans allow you to access your investments without penalty. Unless you have non-retirement assets you can access, you may want to play it safe and keep the money in the plan.

2. Do you need creditor protection or are you thinking about bankruptcy? In general, both 401ks and IRAs are protected assets from creditors in bankruptcy. It’s the non-bankruptcy creditor protection for IRAs that can get more complex, as this is governed by state laws. Consequently, if you roll over your 401k into an IRA, you may have less protection from creditors in a non-bankruptcy situation. If this is a potential issue, be sure to get the appropriate legal advice before the rollover.

3. Do you have outstanding loans? If you’ve left your job, most require that you pay back the loan quickly. If you don’t, then the balance will be taken from your account and it’s considered a taxable distribution. If you’re under 59.5 years old, then you’ll not only pay taxes but the 10 percent penalty as well.

There is no “one size fits all’ answer to the question. There are many other issues that you should review before making the decision. Get some help from someone with your best interests in mind before you make the decision.

There are many good reasons to rollover your 401k to an IRA. Those include:

1. You want personalized, professional advice. You want help developing and monitoring a plan to help you get into retirement and stay there.

2. You want to have a wider array of investments to choose from and an advisor that can help you choose investments that will work for you.

3. You want to simplify your life by having all accounts managed by one advisor.

4. You may want increased distribution flexibility. IRAs make it easier to take normal distributions. There’s typically minimal paperwork and you can choose how much, if any, you’d like to be withheld for taxes. Withdrawals from 401ks can be more cumbersome and they have a mandatory 20 percent federal income tax withholding.

5. You can also make charitable contributions after 70.5 years old from an IRA – not available in the 401k.

Teresa R. Sanders, MBA, RICP, CFP, Aspen Wealth Management, Inc.

Securities offered through LPL Financial, Member FINRA/SIPC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.