The SECURE Act 2.0, passed in the final days of 2022, and made big changes to retirement planning. After taking a look at some of the highlights and changes below, you will likely need to adjust your savings strategy and financial plan.
Changes to Required Minimum Distributions:
Starting in 2023, the age at which retirement account owners must begin taking required minimum distributions (RMDs) is raised to age 73. This is up from age 72 and in 2033, the RMD age is increased again to age 75.
If you turned age 72 in 2022, you must continue taking distributions, but if you are turning 72 this year, you can delay it one more year - so you might review your strategy. Also, the penalty for missing your RMD has decreased from 50% to 25%. If you remove it and submit a corrected tax return in a timely manner, the penalty can be reduced to 10%.
Increase to Catch-Up Contributions: Starting in 2025, employees aged 60, 61, 62, and 63 can make annual catch-up contributions of up to $10,000 (or 150% of the catch-up from the prior year, whichever is greater) to your 401k or workplace retirement plan. The catch-up amount for people age 50 and older in 2023 is $7,500. Catch-up contributions for IRA's starting in 2024 will be indexed for inflation, which means it can increase each year. The current IRA catch-up contribution in 2023 is $1000.
Employer Plan Roth Catch Up: An interesting change - starting in 2024, if you make over $145,000 (and are age 50 or older), all of your catch up contributions in your 401k will go into a Roth account - like it or not. If your employer plan does not have a Roth option, this will likely force the issue.
Note: The catch up contribution is in addition to a regular contribution for people who reach a certain age.
Now a Match for Roth accounts: This has been a highly desired feature for employees for a long time. Up to now employer matches to your 401K have been pre tax. Soon your employer match will be able to go into a Roth account! Your employer may need time to get their systems up to date for this.
5 Star Tip: Plan ahead for this after tax income from the employer Roth catch up and employer Roth match.
Automatic Enrollment in 401(k) Plans: In 2025, the Act will require employers to automatically enroll employees into workplace plans. You can opt out if you choose.
Even More Goodies!
Employer Match on Student Loan Repayments: In 2024, companies can match employee student loan payments with retirement contributions. This gives workers an extra incentive to save for retirement while paying off student loans. Rolling a 529 Plan to a Roth IRA: Starting in 2024, pending certain conditions, you may be eligible to roll a 529 savings plan into a Roth IRA. Note: there are restrictions and max limits on this. Emergency savings: In 2024 employer retirement plans will be able to add an emergency savings account in the form of a Roth account. Contributions would be limited to $2500 annually. It gets better, as contributions may be eligible for an employer match! This is to encourage people to build up an emergency savings fund.
Penalty-Free Emergency Withdrawals: Starting in 2024, an employee can take up to $1,000 from a retirement account for personal or family emergencies without penalty or fees. Domestic Abuse: Starting in 2024, if you've been a victim of domestic abuse and you need access to your funds in your retirement plan - you may be eligible for a penalty free amount up to $10,000 or 50% of your vested balance whichever is less.
The Wrap
The Secure Act has brought about numerous positive changes. Now is the time to adjust your financial planning and savings approach. I assist people all over the US with their financial plans. Please get in touch with me if I can be of assistance.
John Piershale, CFP®, AEP®
john@johnpiershale.com
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