No matter where you are in your professional career — the beginning, middle, or end — these new changes to the American retirement system will probably affect your financial planning along the way.
Four changes that may affect your retirement planning
1.Required minimum distribution (RMD) ages were pushed back again.
The SECURE Act legislation passed in 2019 pushed back the RMD age from 70-1/2 to 72 years. Under SECURE 2.0, RMDs will begin at age 73 for individuals born between 1951 and 1959 and age 75 for persons born in 1960 or later.
2.New RMD option for surviving spouse of a retirement account owner
Beginning in 2024, a surviving spouse of a retirement account owner can use the deceased spouse’s age for RMD purposes if it’s advantageous.
3.Changes related to the Roth Individual Retirement Account (IRA)
The following bullets highlight various ways the new law affects Roth IRAs:
- Eliminates RMDs for Roth accounts in qualified employer plans (e.g., Roth 401(k) and Roth 403(b) plans); begins in 2024.
- Allows creation of Savings Incentive Match Plan for Employees (SIMPLE) and Simplified Employee Pension (SEP) Roth IRAs beginning in 2023; this will take some time for custodians to implement.
- Permits employers to deposit matching and nonelective contributions to employees’ designated Roth accounts.
- Beginning in 2024, high-wage earners (over $145,000) who elect to make catch-up contributions must put them into their employers’ Roth portion, not the pre-tax amount.
- Also, beginning next year, the changes in the law allow 529 plan rollovers to Roth IRAs after 15 years.
- Changes affecting Qualified Charitable Distributions (QCDs)
Beginning in 2023, the new bill gives individuals a one-time opportunity to distribute up to $50,000 of a QCD to certain split-interest-providing trusts: a Charitable Remainder Unitrust (CRUT), Charitable Remainder Annuity Trust (CRAT), or a Charitable Gift Annuity (CGA). No additional funds can be added.
What was not addressed in the new legislation
While SECURE 2.0 contains many positive changes to help taxpayers save more for their retirement, there are provisions many thought would be addressed that needed to be addressed. One is back door Roth conversions, a strategy used to move money from a traditional IRA to a Roth IRA, regardless of income limits.
Next steps
Whenever significant legislative changes affect you and your money, consulting with financial, legal, and tax professionals is always a good idea to learn how the new laws impact your financial situation.
Commerce Trust is here to help you understand what the SECURE 2.0 Act of 2022 means for you and your family, now and in the future. Discover firsthand how our team of professionals can guide your financial planning, explain potential opportunities for growing your wealth, and help implement various solutions to get you to and through retirement. We encourage you to contact Commerce Trust today.