Retired? Here Are 2 Ways the SECURE Act 2.0 Might Affect You

Sections of the legislation provide new planning opportunities for retirees.

The successor to the SECURE Act of 2019 was signed into law in December, bringing with it significant changes to the way millions of Americans will plan for retirement. While many of the legislation's provisions will benefit those in the accumulation phase, retirees will have more options when managing their assets.

1. QLAC contribution limits

Qualified longevity annuity contracts, commonly referred to as QLACs, are a common way for retirees to hedge against outliving their savings. However, these contracts were effectively reserved for retirees with high account balances. The SECURE Act 2.0 made some major changes, making these instruments available to many more Americans.

QLACs are one way that retirees expecting to have a higher-than-average life expectancy can maintain their lifestyles. Annuities at their core, QLACs typically begin paying out at age 85 or older. Their relative inexpensiveness, coupled with their suitability for retirement accounts, makes QLACs a great way for retirees to extend their savings.

In 2014, the Treasury Department ruled that the value of a QLAC could be excluded from required minimum distributions up to the lesser of 25% of account assets or $145,000. The SECURE Act 2.0, however, recently changed the limit to a flat $200,000 (indexed for inflation) for all retirees, regardless of account size. This new piece of legislation will make QLACs affordable for retirees with lower account balances.

2. Charitable distributions

Since 2006, charitable retirees have been able to use qualified charitable distributions, or QCDs, to fund their favorite charities while also catching a tax break. QCDs redirect taxable income from IRA RMDs to a tax-exempt organization. That alphabet soup strategy could have reduced a retiree's taxable income by up to $100,000 in a given year. Now, thanks to the SECURE Act 2.0, that annual limit, which hadn't changed since 2006, will be indexed for inflation starting this year.

The new legislation also introduced another way to give to charitable organizations. Retirees can now make a one-time, $50,000 distribution to charities through split-interest entities including charitable trusts. Both of these strategies allow taxpayers to support causes that are important to them while reducing their tax burden in current or future years.

Among the law's many provisions, the SECURE Act 2.0 offers a variety of new ways for retirees to plan for the future. Qualified longevity annuity contracts are now a more accessible way for retirees to protect themselves from outliving their money. Meanwhile, changes to qualified charitable distributions and one-time transfer allowances will enhance the benefits of charitable giving in retirement.