ABLE and SECURE Act Sequels

It was right there in the year’s name: 2022. Lots of sequels. See all those 2s in the year? We had some of the same experience in legal circles — particularly in the ABLE And SECURE Acts

In the hours before Christmas, Congress passed the Consolidated Appropriations Act of 2023. President Biden quickly signed it into law.

The bill is huge and sprawling, and there were lots of things not directly related to budgets or appropriations included. A couple of those are especially important to us and our clients. The two most important sequels were to the pre-existing ABLE and SECURE Acts.


A quick reminder: the ABLE Act first passed Congress in 2014. It allowed states to authorize accounts for individuals with disabilities, and to offer tax and savings incentives. Many states quickly jumped on board — including (minus the “quickly” part) Arizona. Congress has previously tweaked the ABLE Act several times — in each case making them marginally more useful.

Meanwhile, Congress made sweeping changes to retirement accounts with its adoption of the SECURE Act late in 2019. The best-known changes:

  1. In most cases, participants were permitted to delay withdrawing funds from their retirement accounts for 1-2 years. The new law mandated withdrawals beginning at age 72, rather than 70 1/2, as the prior law had required.
  2. Most beneficiaries had to withdraw all the money from inherited retirement accounts within 10 years, rather than the lifetime withdrawal schedules they had enjoyed under prior law.

Both the ABLE and SECURE Acts had fans and detractors. Both needed some more tweaks. Bills worked their way through Congress to modify both Acts — but without success. Then, both were folded into the new, massive, budget bill. Both have now become law.

ABLE Act change

The budget bill changed a single digit in the ABLE Act statute, but with sweeping effect. As we have described before, ABLE Act accounts have been available to anyone who became disabled before age 26. That number is now increased to 46. One piece of bad news: the age-46 increase does not go into effect for three years. That means that anyone turning 46 between now and 2025 will not be able to take advantage of the new ABLE law. Others will have to wait until 2026.

The significance of this small change could be huge. Most individuals with developmental disabilities were first diagnosed well before their 26th birthday. But individuals with mental illness, head injury and disabling disease often go undiagnosed (or unaffected) for decades after reaching adulthood.

Now individuals diagnosed into their mid-40s may still qualify for an ABLE Act account. This should expand the availability of a terrifically valuable benefit to a whole new group of potential participants. We have seen numerous instances of people who could not qualify because they lacked supporting evidence of early onset of their disabilities. Nearly all of them will now qualify.

An ABLE Act account does not have to be set up by age 46. A 70-year-old can establish an ABLE Act account, and transfer funds to it, provided that he or she became disabled before age 46. And the proof of that disability does not require qualifying for Social Security Disability (SSD/SSDI) or Supplemental Security Income (SSI) payments.

“SECURE 2.0”

The SECURE Act changes are similarly subtle but expansive. Congress has wrestled with a set of proposed changes, often referred to as “SECURE 2.0.” Most of them made it into the final budget bill.

The biggest improvement: retirement account holders get to delay their first distribution by one year. In other words, if you will turn 72 in 2023, and you worried about having to take money out of your retirement account — you just got a one-year reprieve!

The original SECURE Act raised the withdrawal age from 70 1/2 to 72. SECURE 2.0 immediately raises the age to 73. In 2033, the required beginning date age increases again — to 75.

Thus, anyone born in 1951 or after gets an extra year to begin withdrawals from their retirement account. Someone born in 1960 or later gets another two years on top of that.

SECURE and Special Needs trusts

Another small SECURE improvement, which might have significant effects: you can now name a charity as the remainder beneficiary of a special needs trust receiving retirement benefits.

Wait. What? You mean you couldn’t before?

Well, not exactly. You always COULD name a charity to receive the remaining retirement account balance after the death of the special needs trust beneficiary. But it wasn’t completely clear whether the trust could still use the beneficiary’s life expectancy for the retirement account payout schedule. Now it’s clear.

Imagine a 65-year-old woman (let’s call her Bea), unmarried, with one 30-year-old daughter, Dee. Dee has a developmental disability. Special Olympics of Arizona has been a wonderful experience for both mother and daughter. Bea has managed to build a substantial IRA, and she wants to leave it to Dee. But there will be other money in the trust she sets up for Dee, and besides, Dee gets most of her needs taken care of from other sources (like Medicaid, and Social Security payments).

So Bea’s lawyer prepares a special needs trust that benefits Dee for her life, then goes to Special Olympics of Arizona. Before the passage of this new law, that might have meant that Dee’s trust would have to empty the IRA within five years! Now it’s crystal clear that the trustee will only have to take about 3% per year from the IRA if Bea dies in the near future (that percentage gradually increases, of course). If the trustee doesn’t need access to more money, it can stay in the IRA and ultimately benefit Special Olympics. Sweet!

Some other SECURE Act changes

In the meantime, the budget bill makes some other, smaller changes in retirement accounts. Some may affect you; many will not:

  1. Catch-up contributions. Participants aged 50 or older can make additional contributions to their 401(k) retirement accounts as they get closer to retirement. The maximum extra contribution is $7,500. Under the new law, they can add up to $10,000 instead — but only if they are between ages 60 and 63.
  2. Penalties are reduced. If you failed to take a required minimum distribution under the old law, you would be assessed a penalty of 50% of what you should have taken out. That penalty will now drop to 25% — still a serious penalty, but not quite as catastrophic.
  3. Roth 401(k)s. Under the old rules, your employer could set up a Roth 401(k) that allowed you to make post-tax contributions that grow tax-free. But you had to take out funds at the same rate as your other retirement accounts. Now there are no mandatory withdrawals from such accounts. AND your employer can now match those contributions, too.

What else is in there?

Lots. The bill is 4126 pages long. It includes a number of small items of interest to seniors, the disabled and their advocates. But the key provisions for many practitioners and clients — the ones we’ve all been holding our breaths and waiting for — are these ABLE and SECURE Act changes.

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