SECURE 2.0 gives fintechs opportunity to help advisors navigate tax season

The many provisions of the SECURE Act 2.0 are creating an opportunity for fintech companies to help financial advisors make it through tax season.

The latest comes from eMoney Advisor, which added new features to its financial planning software that allow advisors to show the impact that Roth conversions and other tax strategies have on plans. A new tax bracket report overlays a client’s tax bracket floor with their annual income tax base and the taxable portion of any Roth conversion, while an automated bracket-based Roth conversion tool quickly converts assets until reaching the breakpoint between marginal tax brackets.

Roth conversions are at the top of advisors’ minds as they navigate the changes brought on by the 92 provisions included in the SECURE 2.0 Act, the comprehensive retirement savings legislation signed into effect by President Biden late last year, according to Josh Belfiore, eMoney’s manager of advisory products.

“These new capabilities easily enable advisors to have dynamic tax planning conversations with their clients,” Belfiore said in a statement.

The new tools are available in eMoney’s cash flow-based planning dashboard, Decision Center.

EMoney also updated its software to reflect some of the changes in SECURE 2.0, such as the increase in the age at which individuals must start taking required minimum distributions, which rises to 73 in 2023 and then to 75 in 2033; Roth funds in a qualified employer plan no longer being subject to RMDs; and catch-up contributions to an individual retirement account being indexed for inflation.

The Fidelity-owed financial planning company isn’t the only fintech aiming to help advisors keep up with changes to the tax code. For example, FP Alpha provides a Roth Conversion Simulator that identifies how much to convert, when to convert and what it’s worth.

“Tax law is constantly changing and it’s hard for advisors to keep up with what has changed and what year that goes into effect,” Andrew Altfest, founder and CEO of FP Alpha, wrote in an email. Fintech can help advisors keep up, he added. “[FP Alpha] has data for every year and it is updated  to include new legislation, however [we] make sure it is only applied to the relevant years when it will actually take effect according to the law.”

After five years of rapid expansion in IRAs, the sharp market downturn in 2022 should put pressure on IRA rollover balances in 2023, said Shawn O’Brien, an associate director with research firm Cerulli Associates. That combined with the SECURE 2.0 Act could lead to high net flows into companies' defined-contribution plans, O’Brien said.

“Furthermore, the auto-enrollment and auto-escalation provisions within SECURE 2.0 and ongoing legislative and market efforts to expand workplace retirement plan coverage may facilitate stronger contribution growth in the years ahead,” O’Brien said in a statement.

This is providing some momentum for Vestwell, the digital record-keeping company that helps financial advisors offer workplace retirement programs to small and midsize businesses. Vestwell recently partnered with Carson Group on a new offering aimed at helping advisors scale their ability to offer 401(k)s.