At the end of 2022, Congress passed Secure Act 2.0 legislation as part of a larger spending bill. Secure Act 2.0 includes significant changes in the way we save for retirement. Note that while President Biden has signed the bill, the IRS will still have to apply these rules, so there could be more details and changes to come. In the meantime, here are some of the highlights from the newly passed bill:
- Raising the Required Minimum Distribution (RMD) age:
- The bill raises the age for RMDs to 73 and increases to age 75 in 2033.
- Roth 401(k) plans: Starting in 2024, these plans will no longer be subject to RMDs. Note that Roth IRAs were already exempt.
- Penalty reduced: The penalty for missing your RMD deadline is currently 50% of your RMD; that penalty amount is now reduced to 25%. If you correct your error in a timely fashion, that penalty will drop to 10%.
- Catch-up Contributions: 401(k) & 403(b) plans: starting in 2025, the catch-up contribution will be the greater of $10,000 or 150% of the catch-up limit for individuals between ages 60 to 63. Starting in 2026, the catch-up will be indexed by inflation. For IRAs, the $1,000 catch-up limit will be indexed for inflation for tax years beginning in 2024.
- Rollovers from 529 Plans to Roths: Individuals can make tax- and penalty-free rollovers from 529 plans to Roth IRAs, but with certain limitations. The aggregate lifetime rollover limit is $35,000, and beneficiaries must move funds between a 529 plan and Roth IRA in their name. The 529 account must have been opened for more than 15 years. Provisions are also subject to other rules, so consult with your wealth advisor on this strategy.
- Qualified Charitable Distribution (QCD) Increased: The current $100,000 QCD amount will be indexed for inflation going forward. Note you have to be age 70½ to make a QCD to a qualified charity. You can now also make a one-time gift of up to $50,000 indexed for inflation through a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity.
Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing.
1“Secure Act 2.0 to Bring Sweeping Changes to Retirement Rules”
2“Secure Act 2.0: Rethinking Retirement Savings”
The availability of tax or other benefits related to 529 plans may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors as applicable.
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