Secure 2.0 Act – What You Need to Know
By Amber Shrosbree, CFP®
As you have probably heard by now, in late December Congress passed the Consolidate Appropriations Act, which also included the Secure 2.0 Act. Below are a few things that we have pulled from it that we think are worth highlighting, although this is in no way an exhaustive list.
First and foremost – if you were anticipating having to start taking a required minimum distribution (RMD) this year from your personal retirement account, you won’t have to do that.
The new start age for RMD’s has been pushed back to 73 - if you are turning 73 between 2023 and 2032 – and back to 75 for everyone else. Therefore, if you are turning 72 this year and were anticipating having to start taking your RMD, the good news is that you get to punt it just a bit longer.
Another positive change is that retirement plan Roth accounts (401k, 403b) no longer require RMDs. So, if you currently have a Roth 401k through an employer and were anticipating taking an RMD soon, you no longer need to. There is still an argument to be made for rolling over a Roth retirement plan account into a Roth IRA once you are no longer working for that employer.
The rules for surviving spouses in relation to taking RMD’s from inherited accounts has changed for the better as well. The surviving spouse can now choose to be treated as themselves or the decedent, meaning if the surviving spouse is older than the decedent, they now get to withdraw less or even delay the distributions if they choose.
While our goal for clients is that they’ll never run into RMD problems, it is still worth noting that the penalties for missing an RMD have been reduced to 25% of the amount you failed to withdraw and reduced further to 10% if corrected within a certain amount of time. The penalty was previously set at 50%, although in practice the IRS seldom actually levied that penalty if the issue was corrected. However, we think going forward the IRS will really start charging the new penalties.
Another Roth-related change this year is the availability of the Roth Sep-IRA and Roth SIMPLE IRA. While technically you could open one of these at your custodian, there isn’t a high likelihood that they have the paperwork ready for this just yet. Custodians may need some time to catch up to this new allowance.
Starting in 2025, catch-up contributions to retirement accounts will receive a bit of a bump up for a specific subset of savers – those age 60-63 at that time. Instead of the current $7,500 for those over age 50 (with that amount increasing with inflation), that limit increases to the greater of $10,000 or 150% of the standard catch-up. We like this change, although it does bring more complexity.
Another note regarding catch-up contributions in your employer plans: starting in 2024, if in the prior year you had over $145,000 in wages for the same employer, your catch-up contribution goes through “Rothification”, meaning the catch-up amount cannot be pre-tax and will be Roth savings. Keep in mind that this strictly relates to wages, and therefore does not apply to self-employed earners.
Give us a call if you have questions on changes that we did not cover in this article, or on how the ones we did touch on may affect you.