The passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0, part of a $1.7 trillion spending bill signed into law on December 29th 2022, marks an exciting new chapter in retirement planning. With over one hundred provisions, it was designed to help everyday Americans financially secure their golden years. Here’s a quick look at eight noteworthy points and how they might affect your future plans.
Delayed RMD Start Age
Retirement savers born after 1951 now have the potential to retain more of their savings and gain additional tax-deferred growth. For those born in 1960 or later, Required Minimum Distributions (RMDs) will start at age 75 instead of 72, while those who were born before 1951 are unaffected by this change. This shift provides individuals with a longer period for tax-advantaged investment returns as well as extra time to plan their retirement withdrawals strategically.
Impact on Inherited Spousal IRAs
Starting in 2024, spouses of retirement account holders can delay required minimum distributions (RMDs) until the original owner’s RMD age. This applies even if the surviving spouse passes away prior to reaching their deceased partner’s RMD commencement age; any subsequent beneficiaries will be treated as though they were originally listed on that account. These changes offer heirs an advantageous way to manage inherited accounts by delaying withdrawals from them for longer periods and using more favorable distribution tables when calculating those amounts over time.
New Catch-Up Contribution Opportunities
Also beginning in 2024, the Individual Retirement Account catch-up provision for those age 50 and older will get a boost thanks to inflation indexing. Until now, savers had been limited to contributing an unchanging sum each year ($1,000 from 2015–23), but starting in 2024 they’ll have the opportunity to increase their contributions annually with the rate of inflation.
Mandatory Roth Catch-up Contributions
Get ready, high wage earners! Starting in 2024, you will have the option to use your 401(k) plan under Roth rules — a tax-free way of investing and saving for retirement. Contributions made with this rule are not deductible but all associated growth within the account is completely exempt from taxes. Additionally, qualified withdrawals come out tax-exempt as well, an attractive advantage over traditional contributions that require paid RMDs (required minimum distributions). Take note: This only applies to those receiving W2 income; those who are self-employed may still choose pre-tax catch up contributions if desired.
Update to Qualified Charitable Distributions
Donors aged 70.5 and up can now use qualified charitable distributions (QCDs) to fund a split-interest entity, such as specific types of trusts or annuities, with the maximum amount raised to $50,000 in 2023. As an added bonus for 2024 onwards, QCD limits will be adjusted annually according to inflation levels giving donors increased flexibility when funding their chosen charity’s cause.
RMD Penalty Adjustment
The SECURE 2.0 Act significantly reduces the IRS penalty for not taking enough from a qualified retirement account at the prescribed deadline. Instead of incurring an expensive 50% fee, individuals now only owe 25%. Even better, if they remedy the shortfall within time limits that have yet to be determined, this figure can be lowered to just 10%.
With the passage of SECURE 2.0, small employers now have the opportunity to contribute after-tax funds into their employees’ retirement accounts through SIMPLE and SEP Roth IRAs in addition to 401(k)s. Additionally, from 2024 onwards Roth 401(k)’s will be exempt from RMD (Required Minimum Distributions), making them more comparable with traditional Roth IRA’s which never require distributions until death or withdrawal request.
529 Plan-to-Roth IRA Account Transferability
Beneficiaries of 529 plans have been granted a new financial opportunity in 2024, allowing them to move up to $35,000 from their plan into a Roth IRA. To qualify for this transfer option, the account must have been open and maintained for at least 15 years with no contributions within the past 5 years. It’s important to note that only contribution limits set by individual states (currently $6,500) will be accepted each year, meaning total lifetime transfers may not exceed $35k per beneficiary.
You’ve worked hard and put in the time it takes to build up your retirement savings. At 83rd Street, we’re here to ensure that your gained assets continue to serve you to retirement and beyond. Do you have specific questions about how the SECURE Act 2.0 might affect your retirement plans? Don’t hesitate to reach out.
Additional information about 83rd St. Wealth Management is available in its current disclosure documents, Form ADV Part 1, 2A Brochure, and 2B Brochure Supplement, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD# 172115.