In December, President Joe Biden signed the Securing a Strong Retirement Act of 2022 into law. The legislation, colloquially called The SECURE 2.0 Act because it expands on the first SECURE Act, passed in 2019, has already changed several retirement account rules and will modify more in the coming years.

Though wealthy investors are not likely to be deeply affected by some of the adjustments, such as provisions for automatic 401(k) enrollment, some of the new rules could have an effect on financial and estate planning. This is especially true for investors who have retirement accounts such as IRAs or 401(k)s.

It’s important to note that these alterations tend to be fairly technical. Before making any changes to your plan or your accounts, you should consult your tax and legal advisors to make sure you understand your options and how your choices could impact you and your holdings.

Retirement accounts become more flexible under the SECURE 2.0 Act.

The new legislation makes several minor changes to how investors can use and access their qualified retirement accounts, and some of these could offer tax advantages. If you haven’t had a chance to review your financial plan with your Private Wealth Advisor recently, this might be a good time to do so.

Some of the most significant changes loosened rules governing required minimum distributions, or RMDs. These are annual payments that must be made from traditional retirement accounts to their account owner or inheriting beneficiary beginning in a certain year. Because these accounts grow tax free, there’s a concern that they could be used as de facto estate planning vehicles rather than to support the account owner in retirement. RMDs are designed to keep these accounts in line with their primary purpose.

The new rules delay when accounts must begin making RMDs to the year the holder turns 73, an increase from 72. In 2033, the law will raise that minimum age to 75. Additionally, investors will no longer be required to take lifetime RMDs from Roth 401(k)s or 403(b)s, effective in 2024. Distributions for employer Roth accounts will be more in line with traditional Roth IRAs.

The new rules also soften the penalty for missing an RMD. Under the new law, missing an RMD results in an excise tax equal to 25% of the skipped payment’s value, or possibly 10% if certain requirements are met — much lower than the 50% the old rules demanded.

There are also benefits for investors as young as 50 years old. For 2023, such investors can add $7,500 to their account beyond the $22,500 annual cap — a $1,000 increase from the catch-up limit of $6,500 from 2022. Additionally, the new rules boost the maximum catch-up contribution amounts for 401(k)s for investors who are 60 to 63 to at least $10,000 in 2025. IRAs receive a little bonus, too: The catch-up contributions for those over age 50 will remain at $1,000, but they’ll be indexed to inflation starting this year. These benefits may make it easier to load up retirement accounts for investors who couldn’t maximize their accounts early on.

Unfortunately, not everything in the new act is positive. Individuals who are 50 or older and make $145,000 or more per year will be required to make catch-up contributions to a Roth account in after-tax dollars starting next year rather than taking advantage of a 401(k)’s pre-tax contributions.

The law gives investors more options for planning and charitable giving.

The SECURE 2.0 Act gives some welcome flexibility to how investors can fund and use their retirement accounts.

On the funding side, the new rules allow investors to roll over a total of up to $35,000 from a 529 education account to a Roth IRA, starting in 2024. There are a few caveats — the 529’s beneficiary and the Roth IRA account owner must be the same person, the amount that will be rolled over must have been in the 529 for at least five years, and the 529 must be at least 15 years old before it can be rolled over. Additionally, the rollover amount will count against the Roth IRA owner’s annual and lifetime contribution limits. However, this provides an excellent opportunity to avoid potential withdrawal penalties on a 529 that an investor didn’t fully tap for education expenses.

On the utility side, investors can now make a one-time-only qualified charitable distribution, or QCD, from a traditional IRA to a charitable remainder trust — a type of irrevocable trust that makes annual payments to an individual beneficiary before donating the remaining assets to a charity at a set time. The contribution to a charitable remainder trust cannot be more than $50,000, but it can replace an RMD just like any other QCD. Further regulatory guidance is expected to clarify whether that $50,000 would count against the existing $100,000 QCD annual limit.

More typical QCDs that are paid directly to a public charity are also getting a boost. Starting next year, they’ll be indexed to inflation, so the $100,000 distribution cap will keep pace with changing economic environments.

There are some remaining questions that weren’t answered in this new legislation. The most important: The SECURE 2.0 Act doesn’t address the 10-year rule, which mandates that a qualified retirement plan must essentially distribute all its assets to its designated beneficiaries, with some exceptions, by the end of the 10th year after its owner dies. In many cases, that’s straightforward, but whether an inheritor of a retirement account must take RMDs during the 10-year period will likely vary based on that person’s relationship to the deceased account owner and whether the deceased account owner had begun taking RMDs before death.