Secure 2.0 and Your Retirement
On December 29, 2022, President Biden signed into law the “Consolidated Appropriations Act, 2023”. This act included a major package of retirement savings provisions known commonly as “Secure 2.0 Act”. Following are a few key provisions.
RMD Age
Required minimum distributions are mandatory distributions from IRAs and retirement plan assets. For many years, the RMD age was 70. Effective January 1, 2023, the RMD age is now 73 and on January 1, 2033, the RMD age will be 75.
RMD Penalties
Failure to take RMD’s has resulted in a 50% tax penalty on the RMD amount not taken. For years beginning after December 29, 2022, this tax penalty is reduced to 25% with a further reduction to 10% if the RMD failure is corrected in a timely manner.
Catch-Up Contributions
For a number of years, the law has allowed those of us north of 50 years old to make “catch-up contributions” to our 401(k)/retirement plans. And as long as catch-up contributions have been permitted, we have been able to add those contributions to the pre-tax portion of our 401(k) plans.
Under Secure 2.0, and beginning January 1, 2024, catch-up contributions are still permitted. However, for those whose earned income is $145,000 or more, those catch-up contributions may only be contributed to the Roth portion of your 401(k) plan, changing the tax characteristics of that portion of your contribution. If we oversee your 401(k) plan, your plan already allows Roth 401(k) contributions. For the rest of you whose income is above $145,000, and who were born in 1974 or earlier, you may want to confirm that your employer plan allows Roth contributions.
For Those Who Are Retirement Plan Sponsors…
Roth IRA Updates
Effective in 2023, both SIMPLE IRAs and SEP IRAs may offer Roth features.
Student Loan Repayment
Beginning in 2024, employers may make matching 401(k) contributions which can be used to make “qualified student loan payments”. The goal of this clause was to find a tax-effective way to assist employees with paying off student debt.
SIMPLE IRAs
Effective in 2024, catch-up contribution limits for participants and matching contribution limits for employers who sponsor SIMPLE IRAs are increased.
Force-Out Provision Increase
401(k) plan sponsors have long had the ability to force out small participant balances, as a way of reducing administrative load. Historically, balances up to $5000 could be forced out to the last known address of the participant or to an IRA in their name. That limit has been increased to $7000.
That’s enough technical information for one sitting. Let us know if and as you have questions.
In the meantime, wishing you only the best.