In late December 2022, Congress passed the SECURE 2.0 Act, which included changes to the rules around retirement plans like 401k, 403b, and individual retirement accounts (IRAs). The changes impact anyone with a retirement account who is currently working or born after 1950.
Here’s how it may impact your retirement savings:
- Changes to the beginning age for required minimum distributions (RMDs) from tax-deferred accounts. If you were born between 1951 and 1958, you can wait until the year you turn 73 to start taking distributions. If you were born in 1959 or later, you can wait until the year you turn 75.
The benefit: You can defer tax on those distributions longer, letting the accounts grow longer -- tax-deferred.
Changes in employer plans (401k, 403b accounts). The three significant changes:
- Employers can offer employees Roth matching contributions. Previously, all matches were pre-tax, even when the employee contributed to a Roth 401k or 403b.
The benefit: More money can go into Roth accounts, which are tax-free. Note that the match will be taxable to the employee.
- Starting in 2024, if your previous year’s wage income is over $145,000, catch-up contributions (age 50+) can only be into a Roth account. This means the catch-up will not be a tax deduction for the employee.
But there is a benefit: More money into tax-free Roth accounts.
- Starting in 2025, 60 to 63-year-olds can be offered a larger 401k catch-up ($10,000 or 150% of their catch-up contribution in a 401k).
The benefit: More money into tax-deferred retirement or tax-free Roth accounts.
Changes to 529s, QCDs, QLACs
- Starting in 2024, a balance remaining in a long-standing 529 college savings account can be transferred to a Roth IRA for the 529 account beneficiary. There are limitations, including a lifetime maximum transfer ($35,000), length of account establishment (minimum 15 years), and annual transfer limits.
The benefit: Less chance you will be “stuck” with unused 529 balances.
- Starting in 2024, the annual qualified charitable distribution (QCD) maximum will increase from $100,000 to $200,000.
The benefit: A larger tax break for the very charitably inclined.
- The lifetime maximum of $145,000 that can be used to purchase a qualified longevity annuity contract (QLAC) in a pre-tax retirement account such as an IRA or 401k has increased to $200,000. Also, the 25% cap on the maximum amount used from your pre-tax retirement accounts to purchase a QLAC has been eliminated.
The benefit: A larger annuity stream and the potential to defer RMDs longer.
- Starting in 2024, RMDs on Roth 401k/403b accounts will be eliminated.
None of these changes will fundamentally change your retirement outlook. But they are positive for many of you, allowing you to put more money into tax-free Roth IRAs and grow your tax-deferred retirement accounts for longer. You build a strong financial plan with multiple tools, and you do it over decades. Congress just gave many of you a few more tools.