SECURE Act 2.0 of 2022 – New Retirement Legislation

Financial Planning

Noma Nkala-Hendon, CFP®

On December 29, 2022, the Setting Every Community Up for Retirement (SECURE) Act 2.0 was signed into law following the SECURE Act of 2019. Below are some provisions that may impact you.

  1. RMDs
    • The SECURE Act 2.0 increased the age at which Required Minimum Distributions (RMDs) begin to 73 starting January 1, 2023, and to 75 starting January 1, 2033.
      • If you are turning 73 in 2023, you will have likely already taken your first RMD when you turned 72 in 2022. You are required to continue taking your RMDs going forward.
      • If you are turning 72 in 2023, you now have an extra year before you are required to take a required minimum distribution.
    • Beginning in 2023, the steep excise tax for failing to take your RMD on time will drop from 50% of your RMD amount to 25% of your RMD amount. This may be further reduced to 10% if timely corrective action is taken.
  2. Annual Catch-up Contributions
    • Catch-up contributions allow individuals aged 50 or older to contribute additional dollars to most work place retirement plans such as 401(K)s.
    • For IRA accounts, the catch-up contributions will remain $1,000, but, beginning in 2024, the catch-up contribution will be indexed for inflation (adjusted to keep up with inflation).
    • For 401(k) plans and other workplace plans, the catch-up contribution is $7,500 in 2023.
      • In 2025, those aged 60 to 63 can make catch-up contributions of 150% of the catch-up contribution limit in that year.  For example, if this rule were effective today, a 62-year-old could contribute $22,500 to a 401(K) plus 150% of the $7,500 catch-up contribution ($11,250) for a total of $33,750.
    • Starting in 2024, catch-up contributions for individuals earning over $145,000 will be made on an after-tax basis (Roth contributions).
  3. 529 rollover to Roth IRA
    • Beginning 2024, up to $35,000 (lifetime limit) from a 529 education savings plan can be rolled over into a Roth IRA under the following conditions:
      • 529 beneficiary and Roth IRA owner must but be the same,
      • 529 account must have been in place for 15 years, and
      • Contributions and earnings to a 529 account in the last five years are not eligible for tax-free transfers to a Roth.
    • The most that can be transferred in one year is limited to that year’s Roth IRA annual contribution limit ($6,500 for 2023).
  4. 401Ks
    • Effective in the 2023 tax year, employers can allow plan participants to elect matching contributions to be made as Roth contributions (previously, matching contributions were made on a pre-tax basis).
    • Beginning in 2024, workplace Roth plans will no longer have an RMD until the owner’s death. Unlike Roth IRAs, which have a RMD upon the Roth owner’s death, workplace Roth plans (i.e., Roth 401(k) plans) are currently subject to RMDs.

At Callan Capital we are here to help you with any planning needs that may arise from changing legislation. Please don’t hesitate to Contact Us if we can be of assistance.

Disclaimer   

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