SECURE Act 2.0: Impact in 2023 and Beyond

In December 2022, Congress passed another massive tax bill, updating a number of provisions to assist Americans saving for retirement. This is commonly known as SECURE Act 2.0. Here are some highlights:

1. RMD age is 73

Beginning January 1, 2023, the Required Minimum Distribution (RMD) age was extended to age 73 from age 72. In 2033, the RMD age will move up to 75. If you turned 72 in 2022, you won’t be included in these new changes, and you should have taken your 2022 RMD by April 1, 2023.

Being able to delay your RMDs could allow your tax-deferred saving to grow before you have to take distributions. However, you should also consider what this means for your tax situation. Larger RMDs have the potential of pushing you into higher tax brackets as well as causing more of your social security to be taxable during RMD years. Let us know if we can help you think through these details and consider additional strategies such as Qualified Charitable Distributions or Roth conversions.

2. Larger catch-up contributions limits

Starting in 2025, employees age 60-63 will be able to make a larger catchup contribution for plans like 401(k)s, 403(b)s, and SIMPLE IRAs. The additional amount will be maxed at 150% of the regular catch-up amount for a given year or $10,000 (which ever is greater).

For example, in 2023 that maximum contribution for a 401(k) is $22,500. Those 50 and older can put in an additional $7,500 for a total of $30,000. The new SECURE Act 2.0 provision would allow 150% of $7,500 (or $11,250) for a total of $33,750.
Also, starting in 2024, the catch up amounts will be indexed for inflation.

3. 529 Changes Coming in 2024

If you have leftover funds in a 529 Plan after paying for your child’s college, you now have an additional option: you will be able to roll up to $35,000 into a Roth IRA for your child penalty-free. This only applies to 529 accounts that have been open at least 15 years. The effective date for this option is January 1, 2024.

4. Emergency withdrawals

Typically if you take a distribution from your retirement account before 59 ½, there is a 10% penalty from the IRS. The new act allows someone to withdraw up to $1,000 a year penalty-free if the funds are used for personal or family “emergency expenses.”

Tax laws seem to be ever-changing, but rest assured that we’ll keep you informed!

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