After months of debate, Congress finally passed some major changes to retirement laws at the end of 2022.1
The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 changes are numerous, complex, and will roll out over several years. Some of these include provisions that raised the requirement for mandatory distributions from retirement accounts and increased access to retirement accounts.
These are additions to the landmark bill passed by Congress about three years ago. The Secure Act 2.0 is a 4,155-page, $1.7 trillion spending bill that is going to be another overhaul of the country’s retirement laws, reinforcing the financial safety net by motivating people to save for retirement.
LET'S FOCUS ON SOME CHANGES FOR 2023:
1. The age at which required minimum distributions (RMDs) begin increased to 73 in 2023.
This change impacts folks born between 1951 and 1959. Therefore, if you turned 72 in 2022, you’ll remain on the prior schedule. If you turn 72 in 2023, you don’t have to take RMDs until 2024.
The Bill states that starting in 2033, the age for the RMD will be 75 years old.
2. The penalty for missing all or part of an RMD decreased to 25% in 2023 (used to be a 50% penalty).
However, if you correct the past-due RMD and pay taxes on it within two years, the penalty drops to 10%.3
3. Qualified Charitable Distributions have a few more options.
Starting in 2023, folks who are aged 70½ or older can gift a one-time amount of $50,000 (adjusted for annual inflation) to a charitable remainder unitrust (CRUT), charitable remainder annuity trust (CRAT), or charitable gift annuity (CGA).4 The $50,000 limit counts toward the year’s RMD.
4. Roth savings get a boost.
Starting in 2023, employers can offer workers the choice to receive vested matching contributions directly to their Roth account, where they’ll grow tax-free.2 Also, Roth contributions to SIMPLE and SEP IRAs are authorized in 2023.5 However, we'll have to wait for the IRS and custodians to work out procedures before folks can take advantage of these new opportunities.
5. More folks can take early distributions from their retirement accounts without penalty.
Starting in 2023, victims of disasters and folks who are terminally ill will be able to access their retirement accounts early without incurring a 10% penalty.6
For disaster relief, you can withdraw up to $22,000 penalty-free from an IRA for federally declared disasters.
The new laws also allow victims of abuse to withdraw the lesser of 50% of an account or $10,000 penalty-free to help them get out of the difficult situation. There's a lot of fine print, so be sure to talk to a financial professional before making any decisions on what to do.
There’s A LOT to unpack in the new laws. Many new rules, including changes to catch-up contributions and 529 plans, will roll out in 2024 and 2025.
As we’ve learned with previous new regulations, Congress might enact new laws, but we often have to wait for the IRS and other agencies to catch up before we can fully make use of them.
However, with increased life expectancies and Americans working longer, these changes are welcomed. Keep in mind, there is more to the Secure Act 2.0., this was only a high-level overview of some of the changes that go into effect this year.
If you have any questions, feel free to reach out!
- https://images.thinkadvisor.com/contrib/content/uploads/documents/415/479719/GA_SECURE-2.0-Act-of-2022_Section-by-Section-Summary-FINAL.pdf Secure Act 2.0 Act of 2022
- https://www.fidelity.com/learning-center/personal-finance/secure-act-2 SECURE 2.0: Rethinking Rretirement Ssavings
- https://www.schwab.com/learn/story/congress-passes-major-boost-to-retirement-savings Congress Passes Major Boost to Retirement Ssavings
- https://www.wsj.com/articles/WP-WSJ-0000441889 The 401(k) and IRA Changes to Consider After Congress Revised Many Retirement Laws