Retirement Planning in 2023:

Understanding the SECURE Act 2.0

It is crucial to understand the SECURE Act 2.0 for retirement planning. Staying up-to-date with the latest laws and regulations is essential in making informed decisions about your finances. Congress passed and signed the new law into effect on December 29, 2022. The SECURE Act 2.0 has important implications for retirement planning, especially for annuities.

Schedule a RMD Review

Update Secure Act 2.0 – RMD

The SECURE Act 2.0 is a new law that may affect your retirement planning. A critical change in the SECURE Act 2.0 involves Required Minimum Distributions (RMDs). These are payments that you’re required to take from your retirement savings accounts, like 401(k)s or IRAs, once you reach a certain age. The SECURE Act 2.0 updates the rules around when you need to take these payments and how they’re taxed.

The age when RMDs must be taken has increased from 72 to 73 for people who turn 72 after 2022. People who turn 72 in 2023 won’t have to take RMDs until they are 73. But those who turned 72 in 2022 must take RMDs for 2022, and their first distribution must be taken by April 1, 2023.

The SECURE Act 2.0 has also changed the penalty for not taking RMDs. Before, if you didn’t take out a certain amount of money from your retirement account, called the required minimum distribution, you would have to pay a tax of 50% on the amount you should have taken out. But now, under the SECURE Act 2.0, that tax has been lowered to 25%. If you meet specific requirements, the tax can be reduced even more to 10%.

These requirements are:

You take out the amount of money you missed during a specific period called the “correction window.”
You take the money out of the (same) type of retirement account from which you missed the required minimum distribution.
You correct the mistake by submitting a form during the correction period.
You meet the deadline, which is the earliest of three possible dates: the date the tax notice was sent, the date the tax was assessed, or the last day of the second full year after the tax was imposed.

Retirement planning can be complicated. Working with a financial professional who can help you understand the changes in retirement laws and regulations is essential. If you manage your retirement savings, consider these changes when planning your withdrawals. Stay up-to-date with the latest retirement news, and seek help from a qualified professional if you need it. By staying informed and making smart financial decisions, you can prepare for a comfortable retirement that meets your needs and goals.

Age

The age to start taking RMDs will increase to 73 in 2023 and 75 in 2033.

Employer

Starting in 2024, RMDs will no longer be required from Roth accounts in employer retirement plans.

Penalty

The penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected on time for IRAs.

Emergency Savings

Defined contribution retirement plans will be able to add an emergency savings account associated with a Roth account.

Changes that might

affect your retirement!

RMDs Changes
- Starting Jan 1, 2023, the RMD age limit will be increased to 73 from 72.
- The penalty for not taking RMD will decrease to 25% from 50%.
- Roth accounts in employer retirement plans will be exempted from RMD requirements starting in 2024.
- For in-plan annuity payments that exceed the participant’s RMD amount, the excess annuity payment can be applied to the year’s RMD.
Higher Catch-Up Contributions
- Individuals aged 60 through 63 can make catch-up contributions of up to $10,000 annually to a workplace plan starting Jan 1, 2025.
- If you earned more than $145,000 in the prior year, all catch-up contributions at age 50 or older must be made to a Roth account in after-tax dollars.
- IRA catch-up contribution limit for people aged 50 and over will be indexed to inflation starting in 2024.
Matching for Roth Accounts
- Employers can provide employees the option of receiving vested matching contributions to Roth accounts.
- RMDs from an employer-sponsored plan are required for Roth accounts until the tax year 2024.
Qualified Charitable Distributions (QCDs)
- Starting in 2023, people who are 70½ or older can elect as part of their QCD limit a one-time gift up to $50,000, adjusted annually for inflation, to a charitable remainder uni-trust, a charitable remainder annuity trust, or a charitable gift annuity.
Changes for Annuities
- QLACs will have a dollar limit of $200,000 for premiums starting January 1, 2023.
- The law eliminates a previous requirement that limited premiums to 25% of an individual’s retirement account balance.
Automatic Enrollment and Plan Portability
- Businesses adopting new 401(k) and 403(b) plans must automatically enroll eligible employees starting at a contribution rate of at least 3% beginning in 2025.
- Retirement plan service providers can offer plan sponsors automatic portability services.
Emergency Savings
- Defined contribution retirement plans can add an emergency savings account that is a designated Roth account eligible to accept participant contributions.
- Contributions would be limited to $2,500 annually, and the first four withdrawals in a year would be tax and penalty-free.
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