The SECURE Act 2.0, signed into law on December 29, 2022, builds upon the original SECURE Act of 2019 and introduces several important changes that affect special needs planning. With many provisions taking effect in 2023 and 2024, and others, like expanded ABLE account eligibility, set to begin in 2026, this legislation reshapes how families and fiduciaries manage retirement accounts, Special Needs Trusts (SNTs), and other financial resources for individuals with disabilities. Understanding the timeline and implications of these updates is critical to maintaining benefits eligibility while optimizing long-term financial strategies. Some of the updates include the following:
1. Increase in the Required Minimum Distribution (RMD) Age
One of the more notable changes is the phased increase in the age when individuals must begin taking RMDs from retirement accounts. As of 2024, the RMD age is 73 (up from 72 in 2023), and it will rise to 75 for those born in 1960 or later.
Implications for SNTs:
This shift gives individuals, often family members funding SNTs, additional time for tax-deferred asset growth. Fiduciaries should evaluate how these extended accumulation periods might affect future trust contributions and distributions, ensuring they align with the beneficiary’s needs and long-term financial goals.
2. 529 Plan to Roth IRA Rollovers
Beginning in 2024, certain unused funds from 529 education savings plans can be rolled over into Roth IRAs, subject to several conditions:
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A lifetime cap of $35,000.
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The 529 account must have been open for at least 15 years.
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Annual Roth IRA contribution limits still apply.
Implications for SNTs:
For families with unused 529 funds designated for a beneficiary with disabilities, this provision offers a tax-free way to repurpose those funds. While Roth IRAs are commonly used for retirement savings, their favorable tax treatment can also support longer-term financial planning, including potential contributions to future SNTs. Fiduciaries should integrate this strategy thoughtfully within the broader financial plan.
3. Charitable Organizations as Remainder Beneficiaries of SNTs
SECURE Act 2.0 clarified that a charitable organization can be named as a remainder beneficiary of an SNT without triggering the 10-year rule that normally applies to inherited retirement accounts.
Implications for SNTs:
This change offers families more flexibility in estate planning, enabling them to support both a loved one with a disability and philanthropic causes. Beneficiaries can still receive distributions over their lifetime without the need to accelerate withdrawals. However, care must be taken to avoid designating ineligible organizations, such as private foundations, which could jeopardize tax benefits.
4. Expanded Eligibility for ABLE Accounts
Although not tied to RMDs, the SECURE Act 2.0 expanded eligibility for ABLE (Achieving a Better Life Experience) accounts. Starting in 2026, individuals who become disabled before age 46 (increased from age 26) will be eligible to open and use these accounts.
Implications for SNTs:
ABLE accounts can complement SNTs by providing beneficiaries with direct access to funds for everyday expenses without affecting their eligibility for public benefits. Trustees may consider ABLE accounts as part of a flexible, multi-pronged financial strategy.
Why These Changes Matter in Special Needs Planning
For fiduciaries, incorporating these updates into their planning processes can help:
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Minimize tax exposure through delayed RMDs and expanded rollover opportunities.
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Enhance savings flexibility using tools like 529-to-Roth IRA conversions.
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Preserve public benefits through careful account structuring and distribution planning.
Staying informed and proactive ensures that the financial plans you steward are not only compliant with current laws but are also optimized for the long-term well-being of individuals with disabilities.
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