Jan 13, 2023 The 4 Changes from SECURE Act 2.0 You Should Know for 2023
SECURE Act 2.0 was signed into law at the end of 2022 as a follow up bill to the original SECURE Act that was signed into law in 2019. SECURE 2.0 targets several retirement provisions that go into effect over the next 10 years. We will focus on the changes for this year and continue to provide updates on future changes as we have more information.
1. Required Minimum Distribution (RMD) Age
One of the main changes from SECURE 2.0 is pushing the Required Minimum Distribution age further back. Prior to the signing of SECURE Act 2.0, those turning 72 in 2023 would have been required to start taking distributions from their Employer retirement plans, Traditional IRAs, and IRA annuities. That age has been pushed to age 73 starting January 1st, 2023 for those born between 1951-1959.
It will increase to age 75 for those born 1960 and later.
This does not affect the ability to do Qualified Charitable Distributions (QCDs) from your IRA account. You can still do QCDs from your IRA at age 70.5.
2. Penalty for Missing RMDs Reduced
Starting in 2023 there is a reduction in the penalty for missing a Required Minimum Distribution. Previously, if you missed your RMD you paid a 50% penalty on the amount you needed to withdraw. This has been reduced to 25% and can go down to 10% if fixed in a timely manner.
3. New Roth option for SIMPLE & SEP IRAs
Another notable change for 2023 is the creation of both the SIMPLE & SEP Roth IRA. Prior to SECURE 2.0, SIMPLE & SEP plans were only pre-tax funds. Technically individuals can create and contribute to the Roth SIMPLE or SEP as of Jan 1, 2023, but custodians, employers and the IRS still need to update plans and paperwork to allow this to happen.
Your advisor can discuss your specific circumstances to determine if switching to Roth contributions in your SIMPLE or SEP makes sense.
4. Employer Roth Contributions
Effective immediately, employers can elect to make Roth contributions to employee accounts as a matching or nonelective contribution. Profit sharing contributions are not eligible. This contribution would be taxable to the employee in the year of the contribution. Retirement plans & employers will need to update paperwork to allow this change to take place.
Changes in 2024 and Beyond
1. Required Roth Catch-Up Contributions for High Wage Earners
Starting in 2024, those who earn wages in excess of $145,000 must contribute their catch-up contribution in their 401k, 403b, and 457 plan as Roth contributions.
2. Roth Retirement Account Required Minimum Distributions
Starting in 2024, those who have Designated Roth accounts are no longer required to take required minimum distributions. Prior to SECURE 2.0, if you left Roth contributions in your 401k or other employer retirement account you had to take a minimum distribution. This could be avoided by rolling the Roth contributions to a Roth IRA account.
3. Increased Catch-Up Contributions
Beginning in 2025, for those ages 60-63, the catch-up contribution will be increased to $10,000 or 150% of the regular catch-up contribution, whichever is greater. The current catch-up contribution for 401ks is $7,500.
4. Tax-free rollovers from 529 accounts to Roth IRAs
Starting 2024, SECURE 2.0 will permit beneficiaries of 529 college savings accounts to make direct trustee-to-trustee rollovers from a 529 account in their names to their Roth IRAs without tax or
5. Penalty-free Withdrawals from Retirement Accounts
The tax code imposes a 10% penalty on the taxable amount of withdrawals from retirement accounts, such as 401(k) plans and IRAs, received before age 59½. There are several exceptions to the 10% tax on early distributions. Starting in 2024, SECURE 2.0 adds a new exception for certain distributions used for emergency expenses, which are defined as unforeseeable or immediate financial needs relating to personal or family emergency expenses. Only one distribution of up to $1,000 is permitted a year, and a taxpayer has the option to repay the distribution within three years. There were several other exceptions added as well.
6. “Matching” contributions for employees with student loan debt.
Also beginning in 2024, the new law will allow an employer to make matching contributions to 401(k) and certain other retirement plans with respect to “qualified student loan payments.” The result of this provision is that employees who can’t afford to save money for retirement because they’re repaying student loan debt can still receive matching contributions from their employers into retirement plans.
Some other changes down the road:
2024: QCD & IRA Contributions linked to inflation, employer-sponsored emergency savings accounts, changes to surviving spouse RMD calculations, reduction of hours needed for part time workers to be eligible for retirement plans
2025: Auto Enrollment for new employer retirement plans
2026: Expanded eligibility for ABLE accounts
2027: Saver’s credit will become Saver’s match
2028: S Corp stock sales to ESOP eligible for 10% gain deferral
Please feel free to schedule a meeting if you have any questions.
Company News
Market Commentary
Retirement Planning
Tax Planning
Cyber Security
Important Disclosures
Leonard Rickey Investment Advisors, PLLC (“LRIA”), is an SEC registered investment adviser located in the State of Washington. Registration does not imply a certain level of skill or training. For information pertaining to the registration status of LRIA, please contact LRIA or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov).
This is provided for general information only and contains information that is not suitable for everyone. As such, nothing herein should be construed as the provision of specific investment advice or recommendations for any individual. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. There is no guarantee that the views and opinions expressed herein will come to pass. This newsletter contains information derived from third party sources. Although we believe these third-party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein and take no responsibility therefore.
Any projections, forecasts and estimates, including without limitation any statement using “expect” or “believe” or any variation of either term or a similar term, contained here are forward-looking statements and are based upon certain current assumptions, beliefs and expectations that LRIA considers reasonable or that the applicable third parties have identified as such. Forward-looking statements are necessarily speculative in nature, and it can be expected that some or all of the assumptions or beliefs underlying the forward-looking statements will not materialize or will vary significantly from actual results or outcomes. Some important factors that could cause actual results or outcomes to differ materially from those in any forward-looking statements include, among others, changes in interest rates and general economic conditions in the U.S. and globally, changes in the liquidity available in the market, change and volatility in the value of the U.S. dollar, market volatility and distressed credit markets, and other market, financial or legal uncertainties. Consequently, the inclusion of forward-looking statements herein should not be regarded as a representation by LRIA or any other person or entity of the outcomes or results that will be achieved by following any recommendations contained herein. While the forward-looking statements here reflect estimates, expectations and beliefs, they are not guarantees of future performance or outcomes. LRIA has no obligation to update or otherwise revise any forward-looking statements, including any revisions to reflect changes in economic conditions or other circumstances arising after the date hereof or to reflect the occurrence of events (whether anticipated or unanticipated), even if the underlying assumptions do not come to fruition. Opinions expressed herein are subject to change without notice and do not necessarily take into account the particular investment objectives, financial situations, or particular needs of all investors.
For additional information about LRIA, including fees and services, please contact us for our Form ADV disclosure brochure using our contact information herein. Please read the disclosure brochure carefully before you invest or send money.
2024 1st Quarter Investment Commentary