Secure Act 2.0 tax law updates
Congress recently passed the Secure Act 2.0 and the following provisions are part of the new law (sources include Forbes Magazine and CNBC):
1. Raising the RMD [Required Minimum Distribution] age to 73 (and eventually 75) - Currently, savers have to start taking RMDs at age 72. The withdrawal amount is based on a calculation dictated by factors like account value and longevity. The new law raises the RMD starting age in two tranches: to 73, starting in 2023, and to 75, starting in 2033.
2. Eliminating RMDs from a Roth 401(k) - Starting in 2024, investors in employer retirement plans likes Roth 401(k) accounts will no longer have to take RMDs.
3. Reducing RMD tax penalties - Withdrawal rules can be complicated — and making a mistake can be expensive. The IRS assesses a tax penalty on account owners who fail to withdraw the full amount of their RMD or who don’t take a distribution by the annual deadline. The new law reduces the tax penalty to 25% — from 50% — on the RMD amount that wasn’t withdrawn. If a taxpayer corrects their mistake in a timely fashion, the penalty falls further, to 10%.
4. Catch-up contribution limits boosted - Right now, people who are 50 or older can make additional contributions to their qualified retirement plans. Beginning in 2025, these “catch-up” contributions would be increased to $10,000 per year or 50 percent more than the regular catch‐up contribution amount — whichever is greater — for those who turn age 60, 61, 62 or 63 during a given year. After 2025, those amounts will be indexed for inflation. The catch-up contribution amount for individual retirement accounts (IRAs) is currently set at $1,000 and does not adjust for inflation. Beginning in 2024, the legislation would index the IRA catch-up contribution for inflation in $100 increments.
5. Expanded Roth rules - Beginning in 2023, Roth contributions can be made to both SIMPLE IRA and Simplified Employee Pension (SEP)-IRA plans and employer matching contributions to a qualified retirement plan can be made to a Roth account. Defined contribution plans can provide participants the option of treating matching contributions as Roth contributions.
Note neither Highcroft Investment Advisors, LPL Financial, nor Gerald Asplund are tax professionals and this information is provided for informational purposes only. Be sure to consult your tax advisor relating to any tax topics.
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