On December 23, 2022, President Biden signed a $1.7 trillion budget bill. This bill includes the Secure 2.0 Act of 2022. This bill has 3 main focuses: to get people to save for retirement, improve retirement rules, and make it easier/cheaper for employers to set up the plans.
Here is what you need to know about the Secure Act:
- The Required Minimum Distribution (RMD) Age increases
- 2022 RMD age is 72
- 2023 RMD age is 73
- 2033 RMD age is 75
- The catch-up contributions for people aged 50 and over to 401(k) accounts increases
- 2022 catch-up contribution limit is $6,500
- 2023 catch-up contribution limit is $7,500
- 2025 catch-up contribution limit will be $11,250 for those 60-63
- Reduced penalties for failure to take RMD
- 2022 penalty is 50%
- 2023 penalty is 25%
- IRAs – penalty is reduced to 10% if corrected
- ROTH 401(k) RMD
- 2022 RMD age is 72
- 2023 RMD age is 73
- 2024 RMD age is eliminated
The Secure 2.0 Act Can Help You in Retirement
The government wants to see you save money for the future and recognizes that sometimes there are hardships. This act also includes a clause that allows for employer emergency savings accounts alongside retirement accounts. This lets employees save up to $2,500 in Roth-style accounts for emergency savings. The contributions would be made after-tax, and withdrawals and growth could be used tax-free at any time.
The idea is the money is there for the employee’s use, without them cashing in on their retirement accounts and having to endure penalties for early withdrawals. And, just for saving, the government will give you a credit of up to $1,000 if you put at least $2,000 into retirement. This will begin in 2027.
Now, if you really planned, or grandma and grandpa helped save for the kids, there may be leftover funds in a 529 college savings account. If you are one of the lucky ones to come out of college with “excess” funds or you ended up not going to college and the fund has been sitting in a 529 account for at least 15 years, you will now be able to roll these funds into a ROTH IRA beginning in 2024.
There are a few other changes in the budget bill including standardizing rollover forms and automatic enrollment of employees when eligible, but these are not as important as the items above.
We don’t want to overwhelm you with all the information. We are always here to assist you and help you understand these changes as they begin to impact you over the next few years. Feel free to ask your tax preparer any questions relating to the new bill.
