The original “SECURE” Act was approved into law in 2019.
SECURE stands for Setting Every Community Up for Retirement
Enhancement. It was aimed at preventing Americans from outliving
their savings. SECURE 2.0 Act was enacted in December 2022 to
finish the job by helping workers save more money for retirement
and leave their savings untouched and untaxed for longer. Here
are a few highlights you should be aware of.
The age that retirees must begin taking taxable distributions from
their traditional IRAs raises from 72 to 73 starting in 2023. If you
turn 72 this year, you will not be required to start your RMD until
2024. The RMD age will change from 73 to 75 in 2033.
Another favorable change to the rules starting this
year, the excise tax for NOT taking your RMD drops from 50% to 25%
of the RMD amount, but if corrected in a timely manner (sometime
during the following tax year) the tax drops to only 10%.
The cap on Qualified Longevity Annuity Contracts (QLACs)
has been raised from $125,000 to $200,000, and the 25% limit is
eliminated. A QLAC is simply an annuity contract purchased with
IRA (or other retirement plan) funds to create a fixed monthly
income payment from your retirement account which can begin as
late as age 85. This is one option to consider if you are looking to
create a monthly “paycheck” to supplement your social security.
Under the SECURE 2.0 Act, retirees can now combine the payments
from both the QLAC and the IRA for the purpose of calculating their
RMD. Previously they had to be separated, each with its own RMD
which sometimes resulted in higher total RMD payments than if
they were combined.
Starting in 2024, a husband or wife can use the
deceased spouse’s age for RMD calculations and use the more
favorable Uniform Lifetime table to stretch RMDs over his/her
lifetime. If the surviving husband or wife dies before RMDs begin,
the beneficiaries (most often their children) can stretch RMDs
over their lifetime instead of being stuck with the 10-year rule.
This is quite lucrative in a situation where the deceased spouse
was younger, had a sizeable IRA, and the surviving husband or
wife remarries.
If you have a 529 account
where there is money left over that won’t be used for a family
member’s college expenses, you may be facing a sizeable tax bill if
you are planning to cash it out to repurpose the money. Fortunately,
account beneficiaries will now be able to directly roll over up to
$35,000 to Roth IRAs provided the 529 has been open for at least
15 years. The beneficiary must have earned income and rollover
is subject to annual contribution limits, $6,500 in 2023. Any money
contributed to the 529 within the last 5 years is not eligible to be
rolled over to the Roth.
If you have student
loans to be repaid, your employer can now help you directly.
Starting 2024, the employer can match an employee’s student
loan payment with a contribution to the employee's 401(k) plan.
This could be an inducement for potential employees with large
student loan debt to join a company.
Beginning in 2025, the
Act requires most new employer-sponsored plans to automatically
enroll employees with contribution levels between 3% and 10% of
income, and automatically increase their savings rates by 1% each
year until they reach at least 1% - 15% (max) of employees earned
income. Workers will be able to opt out of the programs.
There are over 90 provisions in the Act including allowances
for families to access retirement funds in case of emergencies,
increasing the “Catch-up” contributions for workers over 50, and
providing more flexibility to make higher charitable donations
from your IRA to name a few. The items listed above are not all
inclusive, but they are the ones that will most likely affect you and
your family so it’s good to be aware.
With recent tax law changes, this is a good time to evaluate your
plan for Retirement Savings. As always, our team would be happy
to help guide you through the process and answer any questions
you have.
©2023 Broadridge Investor Communication Solutions, Inc. All rights reserved. This material provided by Nancy E. Bowes.
This material is provided for general information purposes only. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust or its affiliates, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.