New Year, New Laws, New Planning Opportunities
In the waning weeks of 2022, Congress passed some changes to retirement plans that have been called Secure 2.0. While we won’t go through each and every change, we wanted to briefly review some of these that may have the greatest impact on our clients. Though implementation has been delayed until 2024 for many provisions, giving folks a chance to update software and regulations to match, some changes have taken effect immediately.
What has changed for 2023?
If you turn 72 in calendar year 2023, you would have been required to start taking Required Minimum Distributions this year. However, as part of a general delaying of RMD age, you will now start taking RMDs in 2024 instead, when you turn 73. Ultimately, the RMD beginning age will phase up to 75.
If you or your employer has a SIMPLE or SEP IRA plan set up, typically you would only be permitted to put employee contributions in on a pre-tax basis. Starting in 2023, though it will take time for employers and investment companies to catch up, you’ll be able to put Roth money into these accounts.
What will change for 2024?
Your employer will be allowed to make their matching retirement contributions in Roth money instead of pre-tax money—this will not be required, but it will be an option.
High wage-earners (not self-employed!) who are over age 50 and make more than $145,000 will be required to make their additional “catch-up contributions” to a retirement plan in Roth money. If your employer doesn’t offer a Roth option, you won’t be allowed to make extra contributions at all. If you are a high wage-earner approaching 50, this is a great time to email your benefits person and ask if your plan offers Roth contributions or could be changed to offer them.
If you opened a 529 for your child but not all that money was used for their education, and there aren’t siblings to transfer those funds to, as long as certain conditions are met, that 529 money can be put into a Roth IRA for them up to a lifetime maximum of $35,000. If you have been wavering on funding a 529 for this reason, this could be a great option to preserve excellent tax benefits for them.
Catch-up contributions to IRAs for folks 50 and over, which hadn’t increased in 15 years, will be pegged to inflation.
Folks who are age 60, 61, 62, or 63 and participate in a 401(k), 403(b), or SIMPLE IRA plan will have extra, extra catch-up contributions available. These valuable pre-retirement years will be a huge last-minute planning opportunity to squirrel away funds.
While most of the above really affects high earners or those with positive cash flow, Congress also made a big change to try to help the roughly 60% of Americans who live paycheck to paycheck. A new type of Emergency Savings Account will allow non-highly compensated employees to put money into a money market account that employers will match as if it’s a contribution to their 401(k) plan if they have one. Withdrawals will be tax and penalty free and up to $2,500 can be put in.
These are just a few of the most impactful changes in Secure 2.0, and we will continue to review and dig into planning opportunities as we get further in 2023!