SECURE ACT 2.0 Retirement Planning Changes

Congress passed a bill at the end of 2022 that has many effects on retirement planning. See below for a list of the largest changes.

  • Required Minimum Distributions (RMDs) from Traditional Retirement Accounts have been pushed back.
    • If you were born in 1950 or earlier, no changes to your RMDs. You either are currently taking them, or will have to start at age 72. If you turned 72 in 2022, then you still have to begin your Required Minimum Distribution.
    • If you were born between 1951-1959, then your RMD age is now 73.
    • If you were born in 1960 or later, then your RMD age is now 75.
  • Roth 401(k) accounts will have RMDs eliminated beginning in 2024. This will align the rules between Roth 401(k) accounts and Roth IRAs.
  • SEP and SIMPLE IRAs can now offer Roth accounts.
  • Employers can have the option of placing matching contributions into Roth accounts. The amount will be designated as income to the employee that employees will need to pay taxes on.
  • Beginning in 2024, employees with wages above $145,000 (will be inflation-adjusted) will need to make their age 50+ catch up contributions into the Roth portion of their workplace retirement place. Self-employed individuals seem to be exempt from this rule.
  • IRA catch-up contributions are indexed for inflation.
  • 529 Plan transfer to Roth IRAs allowed under certain circumstances with a $35,000 limit. There are many rules to follow to qualify for this, so make sure you speak with your tax professional before attempting. The rules are there to try and allow taxpayers who have leftover money in a 529 after paying for college to get some of their investment back, or at least pass it on to their kids tax-free.
  • There are now age 60+ catch up rules! Beginning in 2025, people in 401(k) or 403(b) plans who are age 60, 61, 62, or 63, will be able to contribute 150% of the regular age 50+ catch up contribution. With the 2023 catch-up amount at $7,500, the 2025 age 60-63 additional catch up should be at least ($7,500 X 150% =) $11,250 assuming no inflation. With inflation the amount could be higher! Please note that these amounts will only be able to go into a Roth account!
  • Qualified Charitable Distribution (QCD) limit will be increased for inflation beginning in 2024.
  • RMDs penalty has been reduced from 50% to 25%. The penalty can be pushed down to “just” 10% if qualifications are met.
  • Qualified Longevity Annuity Contracts now have an increased $200,000 limit.
  • Beginning in 2024, $1,000 can potentially be withdrawn from retirement accounts for “personal or family emergencies.” There are rules about how frequent investors can do this, so make sure to look into the details before trying this.
  • If that wasn’t enough for you, there’s a NEW TYPE OF RETIREMENT ACCOUNT! It is called an Emergency Savings Account and will be tied to your workplace retirement plan. Contributions are disallowed after the balance reaches $2,500, so the savings value is minor. Employees must be a non highly compensated employee.. Distributions can be penalty and tax-free.

Phew! A lot of minor changes, and there are more, but these are the most significant changes I see from a retirement planning perspective for the majority of retirees. As always, speak with your tax advisor before taking any action!

Happy Planning.

None of the information provided herein is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Optimum Retirement Planning LLC does not promise or guarantee any income or particular result from your use of the information contained herein. Under no circumstances will Optimum Retirement Planning LLC be liable for any loss or damage caused by your reliance on the information contained herein. It is your responsibility to evaluate any information, opinion, or other content contained.