Retirement Changes in the Secure Act 2.0

In the final days of 2022, Congress passed (and President Biden signed) the Secure Act 2.0. Its goal is to help Americans save for their retirement.

The biggest change is that, if you haven’t started taking your Required Minimum Distributions (RMD), you won’t have to start taking them until April 1st of the year that follows the year that you turn 73 (it used to be when you turned 72). Congress also reduced the penalty if you fail to take your RMD from 50% to 25% of the undistributed amount.

The government is putting in place a new option so that you can make additional $10,000 catch-up contributions to your 401(k) or 403(b) between the ages of 60 and 64. However, stay tuned, the details of this contribution option are still being worked out.

Beginning in 2024, up to $35,000 in assets leftover in your 529 plan can be rolled over to a Roth IRA. This would be beneficial as it would allow these assets to continue to grow tax free and allow the beneficiary to have penalty-free distributions once the beneficiary reaches 59 ½. However, there are restrictions on whose 529 account can receive the funds and what contributions are eligible for the rollover.

Also in 2024, the Secure Act 2.0 allows employers to make matching contributions to Roth 401(k) plans (which would be taxable in the year that they are received). They will also remove RMD’s from all Roth 401(k) plans. Since regular Roth IRA’s are tax free, they do not have minimum distribution requirements. This change will bring the regular Roth IRA and Roth 401(k) retirement plans more in line with each other.

Finally starting in 2025, your employer will be required to auto-enroll all employees into a workplace retirement plan. Employees can still opt-out of participating in the company 401(k) or 403(b), but they would have to request to opt-out.

As you can imagine, all of these rules could change. When one or more of these changes affect you, be sure to verify their current status prior to taking advantage.

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