Here is What You Need To Know About the Secure Act 2.0
As you may be aware, Congress has recently passed an Omnibus Spending Bill. Included in the bill is “Secure Act 2.0” which makes changes to retirement plans and the rules governing them, updating the Secure Act that was passed in 2019.
Below is a list of the changes that are the most immediate and relevant to our clients:
- The age at which individuals must begin taking required minimum distributions (RMDs) from their retirement accounts increases from 72 to 73, beginning January 1, 2023. Anyone who is already receiving distributions must continue to do so. In 2033, the RMD age will increase again, to 75.
- The penalty for missing RMDs is being reduced from 50% of the withdrawal amount to 25%. It falls to 10% if the RMD is taken by the end of the next year.
- Victims of domestic abuse can withdraw up to $10,000 penalty-free from their retirement plan account.
- Individuals can withdraw up to $22,000 penalty-free from an employer-sponsored plan or an IRA for federally declared disasters.
- A "retirement savings lost and found" national database is being created that will help individuals find their benefits if they changed jobs, or if the company they worked for moved, changed its name, or merged with a different company.
Other items we are following for future years include:
- Under current law, catch-up contributions to qualified retirement plans can be made on a pre-tax or Roth (post-tax) basis. The legislation changes that for higher-earning workers: For those making at least $145,000, all catch-up contributions are subject to Roth tax treatment, beginning in 2024.
- Catch-up contributions for individuals ages 60 through 63 will increase, beginning in 2025. The new catch-up limit will increase to $10,000 starting in 2025 for those ages 60 to 63.
- Individual retirement account (IRA) catch-up contribution limits will be indexed to inflation beginning in 2024. Currently it is a flat $1,000 extra per year.
- Employees who have a Roth 401(k) won't have to take RMDs from the account starting in 2024 (currently you have to roll your Roth 401(k) into an IRA to avoid RMDs).
- Individuals will be able to roll up to $35,000 from a 529 to a Roth IRA in the name of the student beneficiary. The 529 account must have been in existence for at least 15 years, and the amount that can be rolled over each year is subject to Roth IRA contribution limits. Contributions made in the last five years are not eligible for rollover. This provision becomes effective in 2024.
- Starting in 2024, employers will be able to "match" employee student loan payments with matching payments to a retirement account, giving workers an extra incentive to save while paying off educational loans.
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