As 2022 came to a close, The Secure Act 2.0, legislation designed to help Americans save for retirement, was signed into law. This Act introduces major changes to retirement savings rules. Of course, each of the changes will be incorporated in client financial plans as needed. But since we've had a few questions already, we wanted to briefly share 5 key rule changes with you.
For individuals that have not reached age 72 by 2023, the Required Minimum Distributions (RMDs) age was increased from 72 to 73 giving these retirees an additional year to delay mandatory distributions. Plus, in 2033, the RMD age moves to 75.
Historically, failing to take RMDs meant steep penalties (50% of the RMD not taken). Starting in 2023, the penalty drops to 25%. And if the error is corrected in a timely manner, the penalty is only 10% of the amount not taken.
While we are talking about RMDs, Roth accounts in employer plans will be exempt from RMDs starting in 2024. Before SECURE Act 2.0, participants would need to rollover a designated Roth account to a Roth IRA to avoid RMDs.
The $1,000 catch-up amount for IRA owners over age 50 will be indexed starting in 2024. Plus, in 2025, employer plans will see a special catch-up provision allowing participants aged 60-63 to contribute up to an additional $10,000. Note that those earning more than $145,000 in the prior year will need to allocate their catch-up contributions to Roth accounts as after-tax contributions (does not apply to SIMPLE plans).
Rounding out our top 5 list is the expansion of Qualified Charitable Distribution rules to allow donors over age 70 1/2 to elect a one-time gift up to $50,000 indexed to additional charity types including charitable reminder trusts and charitable gift annuities.
Other rule changes in SECURE Act 2.0 range from employer matching of student loan payments to the ability to roll certain 529 plan assets to a Roth IRA. These rule changes, meant to help current and future retirees, are exciting improvements but everyone's situation is unique, so it is important to consult with an advisor or tax professional to fully understand how SECURE Act 2.0 applies to you.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.