The Week in Review: January 23, 2023
We have been writing a lot lately about how Congress recently passed the SECURE Act 2.0, a follow-up to an overhaul of retirement laws passed just three years ago. I thought a would use this space to highlight the most important changes pertaining to retirement planning. The changes make it easier to save for retirement and may stretch out your savings while in retirement.
Major provisions
The penalty for failing to take a required minimum distribution (RMD), from a retirement account that requires such a distribution, drops to 25% from 50%. If the missed RMD is taken in a timely manner and an updated tax return is filed, the penalty is reduced to 10%.
More importantly, a key provision raises the age for an RMD to 73 years old from 72, starting in 2023. The age rises to 75 in 2033.
If you turned 72 in 2022, you’ll stick with the previous schedule. If you turn 72 this year, you may delay your RMD until 2024, when you turn 73. Starting in 2033, the age for an RMD rises to 75.
If you are enrolled in a Roth 401(k), you won't be required to take an RMD from your Roth 401(k). That begins in 2024.
Starting in 2025, companies that set up new 401(k) or 403(b) plans will be required to automatically enroll employees at a rate between 3 – 10% of their salary. Employees may choose to opt-out, but we believe that saving for retirement is non-negotiable.
Starting next year, employers will be allowed to match student loan payments made by their employees. The employer’s match must be placed in a retirement account.
Beginning in 2025, Secure Act 2.0 allows for a “Special” catch-up contribution for employees 60-63 to their 401(k) or other employer-sponsored retirement plans of up to $10,000. Those with wages over $145,000 must have the catch-up contributions deposited into a Roth Account. IRA Catchup contributions for those over age 50 are now indexed to inflation rather than the catchup Contribution being “Stuck” at $1,000 ($6500 for 2023, $7500 if 50 or older).
Victims of abuse may need cash for various reasons, including funds to remove themselves from a difficult situation. 2.0 allows a victim of domestic violence to withdraw the lesser of 50% of an account or $10,000 penalty-free.
You may withdraw up to $22,000 penalty-free from an IRA or an employer-sponsored plan for federally declared disasters.
Starting in 2024 and subject to annual Roth contribution limits, assets in a 529 plan may be rolled into a Roth IRA, with a maximum lifetime limit of $35,000. The 529 plan must be at least 15 years old and in the beneficiary’s name.
The law allows for a one-time $50,000 distribution to a charity(s) through charitable gift annuities, charitable remainder annuity trusts, and a charitable remainder unitrust. This will count towards your RMD. You must be 70 ½ years old or older.
Many have failed to save for retirement, and the bill addresses some obstacles Americans face.
If you have any questions or concerns, please do not hesitate to contact me directly.
Two for the Road
1. In 2022, just five trading sessions accounted for more than 95% of the S&P 500’s index losses. -MarketWatch. January 3, 2023
2. The last time the S&P 500 index produced negative returns during the 12 months after a midterm election was in 1939. - U.S. Bank, October 11, 2023
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1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.