12/28/2022
ATTENTION - BREAKING NEWS! Saving for and just got a bit easier. Congress approved big changes that can help 401(k) and IRA savers put more money away for their futures.
Congress passed the SECURE 2.0 Act that will restructure most Americans' 401(k) plans and change retirement contributions and withdrawal rules to help Americans better grow and preserve their retirement wealth.
• Starting in 2023, the age required to start taking RMDs (required minimum distributions) from retirement accounts will go from 72 to 73, and in 2033 the age increases to 75.
• Additionally, in 2023 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.
• Starting in 2024, a surviving spouse who inherits a retirement account will be treated as the deceased account holder for RMD purposes. This means if the surviving spouse is younger than their deceased partner, they may be able to delay RMDs.
• Required distributions for Roth 401(k)s will no longer be required starting in 2023 for account holders who are still alive.
• Starting in 2023, those who are 50+ years-old can invest an additional $7,500 as a catch-up contribution to their 401(k) or 403(b)s. That amount will increase to $10,000 starting in 2025 for those ages 60 to 63.
• Starting in 2024, the IRA catch-up limit will be increased for inflation each year. Currently, it's a flat $1,000 extra per year.
• Employers can now offer matching contributions into a Roth 401(k). This is huge!!! Check with your employer to see if they offer it.
• Employers will now be able to automatically enroll their employees in savings accounts linked to their 401(k)s. Employees earning under $150,000 starting in 2023 qualify for these accounts and can save up to $2,500. Employees contribute money they've already paid tax on and can withdraw it tax-free. If an employee meets the $2,500 cap, any additional contributions will be diverted to a Roth account.
• It is now easier for workers to withdraw funds from their retirement accounts penalty-free in the case of personal or family emergencies such as a terminal illness or natural disaster. Starting in 2024, one emergency distribution up to $1,000 will be permitted each year. If the taxpayer does not repay that $1,000 in three years, they cannot take another distribution during that time.
• You should be aware of this if you are an employee: Legislation requires employers starting new retirement plans in 2025 or after to automatically enroll their employees in a 401(k) and 403(b) plan. The automatic enrollment will start at 3% of the employee's paycheck and cannot exceed 10%. Each year, the contribution will automatically increase by 1%.
• The Secure Act 2.0 allows employers to make matching contributions into a retirement account for employees who are making student loan payments, even if they aren’t contributing to their 401(k)s. The match would mirror a retirement match, allowing those borrowers to start saving for retirement while paying down their debt. This also applies to those with 403(b)s, 457(b)s, and SIMPLE IRAs. The key word here is “allows” … meaning your employer isn’t required to offer it, but it is worth asking your employer if they will/do.
• Starting in 2024, the Secure Act 2.0 allows beneficiaries of 529 accounts to roll over up to $35,000 (in a lifetime) into a Roth IRA. The 529 needs to have been open for at least 15 years for a beneficiary to do this. The rollover amount is subject to the annual contribution limit for Roth IRAs, so some people may need to plan to move their funds over multiple years. This is huge for beneficiaries that end up not using part/all of their 529 funds for college as it allows them to transfer the funds into a retirement-savings vehicle.
• There will now be a national lost-and-found registry for 401(k)s. Currently, states operate their own versions. The database will be searchable online, allowing workers to search for their plan administrator.
Source: Fortune.com
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