Jamie Hopkins on Secure 2.0: What's Overhyped, What's Interesting and What to Watch

Jamie Hopkins of Carson Group.

“While there are not millions of people overfunding 529 plans, this does give assurance to parents and grandparents who are funding a 529 plan,” Hopkins says. “Under Secure 2.0, the money can be repositioned for their children or grandchildren to become retirement savings, in cases where their 529 beneficiary goes to a cheaper school, gets a scholarship or does not attend college.”

Before the adoption of Secure 2.0, families were penalized for withdrawing unused or leftover funds from their 529 accounts. Now, families have another option other than simply withdrawing the funds and paying the excise taxes should their child decide against pursuing a higher degree — or complete their education without using all funds in the account.

Under Secure 2.0, there is a $35,000 lifetime limit on such transfers, Hopkins points out, and the 529 account will have to have been in existence for at least 15 years in order to qualify.

“Notably, the normal income limits on Roth IRA contributions do not impact this transfer opportunity,” Hopkins says.

New Charitable Planning Opportunity to Watch

Hopkins also points to key changes affecting clients’ charitable giving. As before, qualified charitable distributions can still be made starting at age 70 1/2. However, clients now have an opportunity to make a one-time $50,000 gift to a qualified charity of their choosing.

Hopkins urges advisory professionals to study the law’s provisions that speak to the expanded use of a vehicle known as a charitable remainder unitrust. Often referred to as a “CRUT,” this type of trust is an estate planning tool that provides income to a named beneficiary during the grantor’s life, and then the remainder of the trust is directed to a charitable cause. As Hopkins points out, this type of trust provides variable income to the beneficiary, based on a percentage of the fair market value of the assets in the trust.

“This will be a new planning opportunity because this stuff is complex, and these transfers are likely to require multiple years of coordinated contributions,” Hopkins says.