As part of the whopping $1.7 trillion omnibus spending bill that passed Congress just before the end of 2022, new provisions for retirement accounts—dubbed SECURE 2.0, since it largely updates the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019—offer many Americans a better opportunity to save for retirement and other important financial goals. SECURE 2.0 may also provide greater flexibility for how you withdraw money from your accounts.
The overall intent of the new laws governing retirement accounts is to expand the access of more persons to the benefits of tax-advantaged retirement savings through 401Ks, 403Bs (for nonprofit and educational organizations), and IRAs. It also allows employers to offer tax-advantaged contributions to an emergency fund and even matching contributions to a retirement account for employees who are making qualified payments on student loans.
But for those focused on maximizing savings as they prepare to enter retirement, SECURE 2.0 raises the amount of catchup contributions available for persons age 50 and older. According to the new rules, participants in 401K, 403B, and 457 plans can contribute an extra $7,500 per year (up $1,000 from 2022); this is in addition to the new annual contribution limit of $22,500 (up from $20,500 in 2022). For persons with IRAs, the annual contribution limit is raised to $6,500 (up from $6,000 in 2022), and those age 50 or older can contribute an extra $1,000 (the same as last year, though this will be indexed to inflation beginning in 2024). Note that according to SECURE 2.0, catchup contributions to 401Ks and 403Bs by persons earning $145,000 or more per year must be made as Roth (after-tax) contributions.
The new rules also offer opportunities for those already in retirement. The age at which owners of traditional 401K, 403B, and IRA accounts must begin taking required minimum distributions (RMDs) is raised to 73, starting January 1, 2023 (if you turned 72 in 2022 or earlier, you will still need to take RMDs as scheduled). And by 2033, SECURE 2.0 will delay RMDs until age 75. This means that those with sufficient retirement income from other sources will have longer to defer receiving income from their tax-advantaged accounts (and decrease the possibility of landing in a higher tax bracket). (Roth accounts are generally exempt from RMDs). Another important change involves the penalty for not taking an RMD. Before SECURE 2.0, the penalty for failing to take an RMD was 50% of the amount not taken. But the new rules reduce the penalty to 25% of the amount for 401Ks and 403Bs, and 10% of the amount for IRAs (if the error is corrected and a revised return is filed in a timely manner).
At Mathis Wealth Management, we want you to have the most updated information for your retirement planning. To learn more about the new laws governing retirement accounts, read our recent article, “A Year-End Gift for Plan Participants: SECURE 2.0.”