The IRS has finalized key provisions of the SECURE Act 2.0, and while these changes may appear technical, they carry important implications for families focused on long-term wealth preservation and legacy planning. If you have significant qualified retirement assets, own a business, or are focused on strategic tax and estate planning, here’s what you need to know.
Qualified Retirement Accounts: Still Useful, But Less Legacy-Friendly
Historically, IRAs and 401(k)s have been reliable vehicles for retirement accumulation—but recent legislative and regulatory changes have reduced their efficiency as multigenerational wealth transfer tools.
Key issues:
- Inherited IRAs Must Now Be Fully Distributed Within 10 Years: This compresses tax exposure for your beneficiaries.
- No Step-Up in Basis: Unlike taxable investments, qualified retirement accounts don’t receive a step-up at death, meaning your heirs will owe taxes on the full value.
- Trusts as Beneficiaries Face New Distribution Rules: Many trusts no longer function as originally intended under the revised guidelines.
Because of these changes, qualified accounts are often better used for lifetime spending, not legacy.
Roth Catch-Up Rules and What They Mean
Starting in 2027, if you earn more than $145,000 in wages from your employer, you’ll be required to make any catch-up contributions to your retirement plan as Roth (after-tax) contributions. For most high earners, this means:
- Paying more tax now in exchange for future tax-free withdrawals
- A reduction in the ability to defer current income through retirement plans
This also shifts the Roth conversation from a savings tactic to a strategic planning tool.
Should You Be Converting to Roth Intentionally?
While mandatory Roth treatment may seem limiting, voluntary Roth conversions—especially when coordinated over several years—can be highly effective for wealthy families:
- Reduce taxable income for future heirs
- Pre-pay income taxes at a controlled rate
- Shrink the size of your estate (potentially reducing estate tax liability)
In combination with charitable giving, gifting strategies, or trust planning, Roth conversions can help you reposition less efficient assets into more flexible long-term vehicles.
A Better Legacy Mix: Taxable Accounts, Trusts, and Life Insurance
We encourage clients to think about retirement accounts as spend-first assets. More tax-efficient legacy tools include:
- Taxable brokerage accounts (which receive a step-up in basis at death)
- Irrevocable life insurance trusts (ILITs) that provide tax-free liquidity
- Strategic gifting or use of irrevocable trusts to transfer wealth outside the taxable estate
These options can help align your estate plan with your long-term goals—whether that’s mitigating taxes, supporting heirs, or funding philanthropic efforts.
Business Owners: Review Your Plan Now
If your company’s retirement plan doesn’t currently allow Roth contributions, your high-earning employees (and possibly you) may be prohibited from making catch-up contributions at all after 2026. This could expose your plan to compliance risk and limit benefits for key team members.
Now is the time to:
- Review your plan document
- Ensure Roth options are available
- Confirm payroll systems can track and report wages correctly
Final Thoughts
The finalized SECURE Act 2.0 rules represent more than a compliance update—they’re a clear signal that the retirement system is shifting. For families with meaningful wealth, especially those navigating the coming estate tax exemption sunset in 2026, these changes highlight the need for a coordinated tax, estate, and investment strategy.
At Granite Harbor Advisors, we work with clients to ensure retirement accounts are optimized in the context of their full financial picture—maximizing near-term flexibility while protecting long-term intentions.
Let’s schedule time to review how these changes may affect your planning.