Military Families: 10 Ways the SECURE 2.0 Act Impacts Your Financial Plan
You may have heard of the SECURE 2.0 Act that was passed in December of 2022 but aren’t sure how it impacts your finances as a Veteran. The military financial professionals with AAFMAA Wealth Management & Trust (AWM&T) are here to highlight 2024/2025 key components and provide guidance. If at any time you’d like to reach out to one of our Relationship Managers, we’re ready to serve you.
In the meantime, here are 10 ways the SECURE 2.0 Act may affect your military family’s finances and what you need to know.
SECURE 2.0 and Military Financial Plans
1. Effective immediately: RMD age changes
A required minimum distribution (RMD) is the amount of money from a qualified retirement plan that must be withdrawn at a certain age. This includes an employer-sponsored retirement plan, a traditional IRA, a SEP, and a Simple 401(k) or IRA. The previous age to begin taking RMDs was 72, but in 2023, the distribution age increased to 73 (for those born in 1951-1959) and in 2033 it will increase to age 75 (for those born 1960 or later). Additionally, beginning in 2024, individuals will no longer be required to take RMDs from Roth 401(k) accounts and Roth Thrift Savings Plan (TSP) accounts. For more on RMDs, read our white paper, “Avoid the 4 Costly RMD Mistakes,” here.
2. Reduction in missed RMD penalties
Prior to this new legislation, a missed RMD resulted in a hefty penalty of 50%. Effective immediately, the SECURE 2.0 Act has reduced this penalty to 25%, possibly to 10% if corrected promptly within the “correction window.”
3. Military spouse eligibility credit
Beginning in 2023, participating employers are encouraged by a tax credit to allow military spouses to participate in their employer’s contribution plan within the first two months of employment. Additionally, spouses are immediately eligible to receive matching employer contributions and will be 100% vested. For more on military spouse retirement, please see our article "Why Military Spouses Should Consolidate Retirement Accounts.”
4. Catch-up contributions
Participants in employer-sponsored plans aged 60 to 63 will be eligible for a higher catch-up contribution beginning in 2025. This increased catch-up will be the greater of $10,000 or 150% of the regular catch-up contribution limit indexed for inflation. Starting in 2024, the Roth IRA and Traditional IRA catch-up contribution amount of $1,000 will begin to be indexed for inflation.
Beginning January 2026, there is a new requirement that any catch-up contributions for those who are ages 50+ and earn more than $145k per year must contribute the catch-up to a designated after-tax Roth account of their employer's plan. This specifically applies to an employee who participates in a 401(k), 403(b), or government 457 (b) plan. The wage limit is applied by determining the employee's prior-years Social Security wages that exceed $145,000.
5. “Rothification” is mandated in employer-sponsored retirement plans
Effective 2024, if an employee earns over $145k of wages subject to FICA tax (U.S. Federal payroll tax), they are mandated to direct age 50+ catch-up contributions to a Roth account.
6. Employers can match employees' Roth contributions but are not required
Previously, employers were only able to match employee contributions into the traditional, pre-tax portion of the retirement savings. Beginning in 2023, employers can match contributions directly to a Roth retirement plan, which marks a shift from taxable to tax-free savings for you. Please note that at this time, the vesting schedule is unclear, and you may need to wait until you’re fully vested (for example, after the account is open for five years). More details to come as they are released.
7. Qualified charitable distributions
A qualified charitable distribution (QCD) from an IRA is allowable for those aged 70.5 and older. The amount is capped at up to $100k per year per account owner since QCDs became available in 2006. Effective 2024, this amount will be indexed with inflation.
8. Use of retirement funds for emergencies
There are two main provisions related to emergency savings starting in 2024. The first would permit individuals to withdraw up to $1,000 annually from their retirement accounts without a 10% penalty. This would need to be repaid within three years to take future withdrawals. The second would allow non-highly compensated employees to segregate up to $2,500 of post-tax contributions into an emergency fund. Withdrawals would be permitted up to four times per year without penalties, taxes, or fees.
9. 529 Rollover to Roth IRA
Beginning in 2024, beneficiaries of a 529 plan can roll over up to $35,000 to their Roth IRA. There are limitations to be aware of:
- The 529 account must have been open for more than 15 years
- The Roth IRA owner and the 529 account beneficiary must be the same person, the owner of the 529 account does not have to be the owner of the Roth IRA (typically the owner of the 529 account is a parent or grandparent)
- The eligible rollover amount must have been in the 529 account for at least five years
- Contributions and earnings made to the 529 within the last five years are ineligible to be moved to the Roth.
- The funds must be rolled over to a Roth IRA owned by the 529 account beneficiary (student)
- The annual rollover maximum is equal to the Roth IRA annual contribution maximum for that year (i.e. $7,000 in 2024)
- There’s a $35,000 lifetime cap on Roth IRA rollovers for each 529 account beneficiary
10. New Post-Death Option for Surviving Spouses
As of 2024, this new option creates a special planning opportunity for surviving spouses. They can treat the account as their own and roll it over into their pre-existing IRA. Effective immediately the spouse can remain a beneficiary but with special treatment, as he or she can elect to be treated as the deceased spouse. These new options are a significant change for surviving spouses; careful consideration of income needs, tax implications, and the surviving spouse’s overall financial plan should be addressed before an irrevocable decision is made.
Secure Your Financial Future
Do you have questions about your military family’s financial plan? An AAFMAA Wealth Management & Trust LLC Relationship Manager is here to serve you and map out your financial strategy for a prosperous tomorrow. Start the conversation or give us a call at 910-307-3500.