In late 2022 Congress passed a sweeping bill called the SECURE Act 2.0. This bill ushered in a dizzying array of roughly 100 changes that impacted the retirement planning landscape for Ford employees. 

By comparison its predecessor, SECURE Act 1.0 had about 30 changes. While we won’t detail all roughly 100 changes we’ll highlight some changes that start in 2024 and its financial planning opportunities.

College 529 Plan to Roth IRA Transfers

Starting in 2024, tax-free and penalty-free transfers are permitted from a College 529 Plan account to a Roth IRA. 

If you find yourself with unused balances in a College 529 Plan this new provision presents a great planning opportunity. For the first time unused balances can be transferred into a Roth IRA where they can grow tax free under current rules.

The account owner has a number of options and can be creative. Options include:

• They can name themselves or a spouse as the 529 Beneficiary and transfer the unused dollars into their own Roth IRA or spouse’s Roth IRA.
• They could also transfer the funds to the child beneficiary’s Roth IRA.
• The account owner could name multiple beneficiaries and split the transfers across multiple beneficiaries.   

There are a few conditions to be mindful of including:

• The 529 Plan account must have been maintained for a15-year period or longer ending on the date of the 529-to-Roth Rollover
• Any contributions to the 529 Plan within the last 5 years (including the earnings on those contributions) are NOT eligible to be moved to a Roth IRA
• The amount of the 529 Plan to Roth IRA Rollover cannot not exceed the aggregate amount contributed to the 529 program account (and earnings attributable thereto) before the 5-year period ending on the date of such rollover
• The Roth IRA receiving the funds must be in the name of the beneficiary of the 529 Plan
• Each year, any transfers will be subject to the annual IRA contribution limits, minus all other IRA contributions made during the year for the same designated beneficiary, in addition, such transfers may not exceed the amount of compensation the designated beneficiary earned during the year
• The aggregate amount of 529-to-Roth IRA transfers for the same designated beneficiary may not exceed $35,000

Parents who want to give their children a great head start with retirement planning can use this planning opportunity by transferring unused 529 Plan dollars into a Roth IRA.

Roth IRAs are favored for retirement savings due to numerous benefits they offer. Here are some key advantages:

• Tax free Withdrawals: qualified withdrawals are tax-free since the account was funded with after-tax dollars, not many investment options offer this feature
• Tax-Free Growth: earnings on investments grow tax-free, the account owner won't have to pay taxes on dividends, interest, or capital gains as long as you follow the withdrawal rules
• No Required Minimum Distributions (RMDs): Roth IRAs don’t require minimum distributions during your lifetime. This is a huge benefit that allows funds to grow tax-free for many years under current laws
• Flexible Withdrawal Rules: The account owner can withdraw their contributions (not earnings) at any time without penalties or taxes, this provides a level of flexibility in case you need access to your funds before retirement
• Contributions at Any Age: As long as one has earned income and meets the income limits, you can contribute to a Roth IRA at any age. 
• No Income Taxes on Social Security - Qualified Roth IRA withdrawals don’t count as income, so they won't impact the taxation of your Social Security benefits
• Diversification of Tax Treatment: Having a Roth IRA can help tax diversification this can give you more flexibility in managing your taxable income especially in retirement to help meet income needs
• Potential for Lower Tax Bracket: If one expects to be in a higher tax bracket in retirement compared to when you make the contributions, paying taxes now at a lower marginal tax rate can be advantageous.

Within the realm of retirement planning for Ford employees, Roth IRAs stand out as a captivating avenue for financial foresight. Few investment avenues match the potential of tax-free growth over extended periods, making them a powerful tool in wealth accumulation strategies.

Increased Qualified Charitable Distributions

Qualified Charitable Distributions (QCDs) are a popular way for individuals 70½ or older to achieve their charitable intentions and maximize charitable impact.

When the QCD provision was first introduced in 2006, the maximum annual QCD amount was limited to $100,000. Since then, the maximum amount has remained the same. Starting in 2024, the QCD limit will change for the first time ever and it will be linked to inflation.

In 2024, donors 70½ years old or older may make a QCD up to $105,000 to qualified charities. Taxpayers older than 70 ½ can also make a one-time tax-free QCD transfer of up to $53,000 to create a charitable gift annuity. This is an increase from the $50,000 limit in 2023. 

The planning opportunity is that QCDs can help avoid higher income tax brackets and prevent phaseouts of other tax deductions. They can also reduce your taxable income, which may help you keep taxes on Social Security lower.

Navigating the intricate landscape of retirement planning as a Ford employee may seem daunting, particularly given the recent updates under the SECURE 2.0 Act. Collaborating with a financial advisor can empower you to make well-informed choices and craft a customized strategy aligned with your specific needs and goals.

All advisory services are offered through Savvy Advisors Inc. (“Savvy Advisors” or “Savvy”), an investment advisor registered with the Securities and Exchange Commission (“SEC”).  Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation.  Information was obtained from sources believed to be reliable but was not verified for accuracy.