How the New Secure Act 2.0 Will Affect Your Retirement

January 23, 2023

By Bridgelight Financial Advisors

The Secure act was designed with the intent of encouraging individuals to have a retirement savings but making it easier for employers to offer qualified retirement plans. President Biden signed the $1.7 trillion omnibus package on December 29, 2022 outlining legislation including multiple changes to the retirement plan law. There are changes that are in effect for this year and others that will be effective in coming years.

Raising The RMD Age

The new law is changing when retirees can withdraw money from their individual retirement accounts and 401(k) plans. Required minimum distribution (RMDs) rules enforce when this can occur. The RMD age has been raised.

The new law raised the RMD starting age to 73 for 2023 and then to 75 starting in 2033. Individuals who turn 73 in 2023 are required to take their first distribution no later than April 1, 2024. The new move in the age has been justified by Americans’ growing life expectancy and increasing retirement age.

RMD Elimination

The Act no longer makes it necessary to roll over funds from a Roth 401(k) to a Roth IRA. Therefore, individuals invested in employer retirement plans such as Roth 401(k) accounts will not have to take RMDs starting in 2024.

Tax Penalties Adjusted

The IRS has a tax penalty when account owners fail to take a distribution by the annual deadline. The law reduces the tax penalty from 50% now to 25% on the RMD amount that was not withdrawn. If the taxpayer, then proceeds to rectify their mistake timely the penalty falls to 10%.

Changes To Roth Investing

Employers now can let workers select whether their matching amount will go directly into a 401(k) or a Roth. In addition, SEP-IRAs and SIMPLE IRAS are also allowed to accept Roth contributions. However, the IRS and custodians have to work out procedures before individuals can take advantage of these new opportunities.

In 2024, RMDs will not be required for any Roth accounts in a qualified employee retirement plan.

Emergency Withdrawals

Employees can now withdraw a maximum of $1,000 per year from qualified employer 401k plan penalty free. The funds have to be repaid within three years and income tax is due on the withdrawal. The 10% penalty is not included which employees under 59 ½ would usually have to pay. If the withdrawal is not repaid within three years the employees have to wait until the three-year period ends before making another withdrawal.

In addition, victims of disasters and folks who are terminally ill will be able to access their retirement accounts early without incurring a 10% penalty. If you think you might be eligible reach out to us to have the conversation.

Charitable Giving

Qualified charitable distributions (QCDs) can come directly from your IRA by the end of the calendar year. People who are 70 ½ and older can elect as part of their QCD limit a one-time gift up to $50,000. This amount does count towards the annual RMD.

529 Plan

The Act now allows tax and penalty free rollovers from 529 college saving plans to Roth IRAs. There are a few limitations. The account has to have been open for over 15 years. The limit is $35,000 and the funds must be transferred in the beneficiary’s name.

Higher Catch-Up Contributions

After 2023, all participants earning over $145,000 annually must make catch-up contributions on a Roth (after-tax) basis. Individuals 60 through 63 years old will be able to make $10,000 annual contributions to a workplace plan starting in 2025.

Starting in 2024, the IRA limit will be indexed to inflation. It can increase every year, based on federally determined cost-of-living increases. Currently it is a $1,000 limit for individuals age 50 and over.

At Bridgelight Financial Advisors we make it one of our top priorities to ensure our clients are in love with every aspect of their retirement. If you are in need of a financial advisor that specializes in helping you make your retirement a successful one, our team at Bridgelight Financial Advisors would love to help you experience confidence in every aspect of your financial plan. Call (203) 795-7080, email, or schedule an appointment online to meet and get started.

About Bill

Bill Leavitt is the president of Bridgelight Financial Advisors, an independent, privately owned fiduciary financial advisory and financial planning firm. He specializes in working with pre-retirees, retirees, professionals, and women investors, helping them navigate a complicated and ever-changing investment landscape. With over 25 years of experience, Bill serves his clients using his own unique financial planning model, The Wealth Focus™ Process, where he helps clients develop their customized long-term wealth strategy in four comprehensive steps. A Connecticut native, Bill resides in southern Connecticut with his wife, Laura, and their three daughters. To learn more about Bill, connect with him on LinkedIn.

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