By Kelley Muhsemann
Marketing Manager
The Secure 2.0 Act was signed into law on December 29, 2022, and is designed to improve retirement savings options. The Act gives retirees 72 and under an extra year before having to withdraw money from their retirement accounts, but the updates can also benefit pre-retirees. Here’s what you need to know:
For Retirees:
- The Required Minimum Distribution (RMD) age has increased to 73 this year, and will increase to 75 in 2033.
- If you fail to take an RMD, the previous 50% penalty has now decreased to 25% of the RMD amount. The penalty for IRA accounts can decrease even further to 10% with the timely submission of a corrected tax return.
- This year, those 70 ½ and older can opt to make a one-time qualified charitable contribution from their IRA account to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. The contribution can be up to $50,000, and if applicable, can count towards your RMD.
- In 2024, you will no longer be required to take RMDs from Roth accounts in employer retirement plans.
- In 2025, catch-up retirement contributions will increase for 401(k), 403(b), IRA accounts, and government plans.
Key Takeaway: If you’re turning 72 this year and have already scheduled your RMD withdrawals, you may want to contact your financial advisor to discuss your withdrawal plan. Keep in mind that depending on your full retirement age, tax strategy, social security, and post-retirement income, there are scenarios in which keeping your already scheduled withdrawals, or even withdrawing early, may make sense.
For Pre-Retirees:
- In 2024, an emergency savings account can be added to defined contribution retirement plans with a contribution rate maximum of $2,500 annually, and the potential for an employer match. In addition, the first four withdrawals in one year will be tax and penalty-free.
- As an incentive to save money while still paying down student loans, in 2024 employers can match student loan payments with matching contributions to the employee’s retirement account.
- 529 plan assets can be rolled over to a Roth IRA for the beneficiary after 15 years, however the funds are subject to annual Roth contribution limits, including an aggregate lifetime limit of $35,000.
- In 2025, the catch-up contribution amount for individuals aged 60-63 will increase from the current $7,500 per year to $10,000 per year.
- In 2025, employers must automatically enroll eligible employees in their 401(k) or 403(b) plans at a contribution rate of at least 3%.
Key Takeaway: Consider discussing the new contribution limits with your financial advisor as an overall part of your financial plan. This is especially important if you have a 529 plan or are currently enrolled in an employer sponsored retirement plan.
What important issues should you consider regarding the changes made by the SECURE 2.0 Act? Download our free checklist to find out how the new law might impact you, and exactly what you should be doing about it.
If you are interested in learning more about the SECURE 2.0 Act, please contact our team of knowledgeable CERTIFIED FINANCIAL PLANNERS™ (CFP®) at 631.218.0077 or info@rwroge.com. We would be happy to go into further detail and answer any questions you may have.
R.W. Rogé & Company, Inc. is a fee-only financial planning and wealth management firm serving clients locally and virtually across the country, with Long Island, New York, Beverly, Massachusetts, and Naples, Florida office locations. We help clients Plan, Achieve, and Live® the life they want since 1986. To learn more about how we do this, click here.
