An interview with Vincent Morris, President, OneDigital Retirement + Wealth
The omnibus spending bill signed into law in the waning days of 2022 included legislation known as the SECURE 2.0 Act. While the Act’s 92 provisions will help improve retirement outcomes for millions of Americans, for financial advisors and their individual and retirement plan clients, the array of new rules is a bit like the dessert menu at the Cheesecake Factory: Very appealing yet staggering.
The reason the new law is so comprehensive — and the likely reason a hyper-partisan Congress passed it — is because instead of making trade-offs, politicians of all stripes largely got everything they wanted for constituents all across the income and wealth spectrum. Because of its extensive breadth, the new law creates unusual opportunities for advisors. Here are three that stand out.
Opportunities to Educate.
The new law is so wide-ranging that many of its provisions could well escape the attention of those who stand to benefit most. Because financial advisors know the specific needs of their individual clients and plan sponsor clients, as well as the broad needs of most plan participants, advisors are in the unusual position of being able to offer the most relevant and valuable insights into the new law. Broker-dealers, custodians and asset managers currently are busy digesting the new law and developing lots of explanatory material. In the meantime, advisors would do well to gather their team to review the law’s provisions with an eye to determining which clients would benefit most from learning about the specific changes that already are in effect and those that are coming. The staggered deadlines of the law’s provisions, which stretch over several years, are an unintended benefit for advisors, affording time to prepare clients as well as numerous opportunities to revisit and review plans throughout this year, 2024 and into the future.
Opportunities for Wealth Managers to Expand into Plan Advice.
For advisors who focus on serving individual clients and who do not actively seek out the retirement plan market, SECURE 2.0 provides powerful incentives to become more involved as a retirement plan advisor, or RPA. For one, the law makes it easier for employers to offer plans and establishes many sweeteners to encourage plan enrollment. For example, the law increases the tax credit for plan startup costs to 100% from 50% for employers having up to 50 employers. There are other credits for employer plan contributions, and employers now can give gift cards and other low-dollar incentives to encourage participation. What’s more, new plans must have an auto enrollment feature, with automatic escalation provisions.
Other features that should increase participation and, eventually, plan assets: A match for employees paying student loans, emergency savings provisions, a federal-government match for lower income earners, access to plans by part-time employees, and broader catch-up provisions.
Opportunities for Current Retirement Plan Advisors.
In addition to the wealth of new-business opportunities that SECURE 2.0 affords in the retirement plan market, wealth managers who aren’t RPAs as well as RPAs who also offer wealth management services stand to gain as well. In addition to providing greater incentives for saving and investment among lower-paid workers, the new law also has incentives and benefits for those with higher incomes. For RPA advisors, this translates into many new ways to serve senior-level executives and company owners at the plans they now serve. One major provision of the law, for example, increases the starting age for beginning required minimum distributions. The original SECURE Act, enacted in 2019, extended the age from 70-1/2 to 72. The new law raised that to 73, which became effective on January 1, 2023. It will rise to 75 on Jan. 1, 2033. The age increases benefit wealthier individuals, who now can wait longer to start drawing down their tax-deferred accounts.
Other provisions likely to benefit wealthier investors include a provision allowing surviving spouses to be treated as the deceased employee for purposes of required minimum distributions, the ability to use distributions up to $2,500 to pay for long-term care insurance premiums, and the opportunity to treat contributions to SIMPLE IRAs and SEPs as Roth contributions.
Rarely in the past has one piece of legislation offered so many benefits to such a broad range of new and existing investors — as well as so much opportunity for financial advisors.
For a comprehensive overview of SECURE 2.0, and to hear the impacts to advisors and wealth managers, tune into the on-demand webinar, SECURE 2.0: An Overview of the Provisions, lead by OneDigital’s Joe DeBello and guest David Levine Principal, Co-Chair Plan Sponsor Practice, Groom Law Group.