Funviralpark Echo Huang, CFP
The Set All Communities for Wellness in Retirement (SECURE) Act, passed in December 2019, has brought about a major shift in the retirement planning landscape. These changes included the elimination of the “stretch” IRA, raising the minimum required distribution (RMD) age to 72, and provisions designed to encourage greater participation in workplace retirement plans. It was In December 2022, Congress passed his SECURE 2.0 law. This makes retirement plans even more impactful than his original SECURE Act.
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- Individuals born before 1950 are not affected by this change, as they have already reached the age of 72. Anyone born between 1951 and her 1958 should start her RMD at age 73. From January 1, 2023, the RMD start age will be raised from She’s 72 to She’s 73. If he turns 72 before 2022, he should still start her RMD. You will receive your RMD on time.
If you turn 72 in 2023 and are already planning to retire, we encourage you to update your retirement plan. By December 31, 2024 he can choose to get his RMD or defer it until April 1, 2025. If you defer your first RMD for her until April 1, 2025, you must get two RMDs for her at once. Tax Year: First RMD up to 1 April 2025 meeting his RMD in 2024 and his second RMD up to 31 December 2025 meeting his RMD in 2025. For other income, it is important to consult a tax advisor. This is because in a year he has two RMDs to avoid moving to a higher tax rate.
To calculate your RMD, divide your year-end account balance from the previous year by the IRS life expectancy factor based on your birthday this year. If he has multiple Individual Retirement Accounts (IRAs), he must calculate the RMD for each account, but the total RMD he can get from one IRA or any combination of IRAs. Retirees who in 2023 will be 73 and own her 401(k) balances are also eligible for her RMD in those accounts. However, if you own more than one of her 401(k)s, you must calculate and obtain her RMD for each 401(k) account separately. You must receive her first RMD by her April 1st of the following year (in this case he is 2024). ”
- The measure would reduce the penalty for missing the minimum required distribution or for giving too little from 50% to 25% of the shortfall. The penalty is further reduced to 10% if the account holder withdraws her unused RMD amount and files an amended return on time. The good news is that some of the toughest penalties in tax law have been eased.
- The SECURE 2.0 bill would increase the cap on catch-up contributions to certain limits when individuals over the age of 50 can make catch-up contributions to retirement plans. Beginning in 2025, the catch-up contribution limit for individuals aged 60, 61, 62, or 63 will be increased to $10,000 or 50% of the regular catch-up amount, whichever is greater. Catch-up contributions for individuals age 50 from 2023 are now $7,500. These amounts are indexed to inflation after 2025.
If you earned $145,000 or more in the previous calendar year, all catch-up donations made over the age of 50 must be made to your Roth Account in after-tax dollars. Individuals whose income is less than her $145,000 are exempt from this Roth requirement after adjusting for future inflation. Beginning in 2024, catch-up contributions to the IRA will be subject to the Cost of Living Adjustment (COLA), which will increase with inflation from his current $1,000 cap.
- After 2024, there will be no more Roth 401(k) and 403(b) bare-bones distributions. Employers can offer their employees the option to receive matching contributions to their Roth account, but it may take some time for plan providers to offer this option and for their payroll system to be updated. Contributions to Ross’ retirement plans are made on an after-tax basis and the income from these contributions may grow tax-free.
Before the SECURE 2.0 bill, Roth 401(k) owners had a simple solution to avoid RMD. Rolling the money into a Roth IRA where the original owner doesn’t have her RMD. Money rolled over into a Roth IRA can be withdrawn tax-free if you are 59.5 years of age or older and have owned at least one Roth IRA for at least five years. The SECURE 2.0 bill eliminates the need to roll over funds from a Roth 401(k) to a Roth IRA. Instead, like Roth IRAs, Roth 401(k) accounts are not subject to the RMD rules until the account holder dies (the post-mortem minimum distribution rules that also apply to Roth IRAs continue to apply). will be displayed). Converting IRA money to Roth IRA is a good strategy to start early. By converting small amounts over a number of years before reaching RMD age, you can spread out your conversion tax bill.
If you are unable to reduce the minimum required distribution amount, you can reduce your RMD by making and tracking non-deductible contributions to your traditional personal retirement account (by filing Form 8606 with your tax return). You may be able to reduce your tax amount. In this case, part of the RMD can be considered as derived from non-deductible contributions and is tax-free. For example, if your IRA is $300,000 and you have a non-deductible contribution of $30,000, 10% of the distributions from your IRA will be tax-free. Each time you receive a distribution, you must recalculate the tax-exempt portion until all non-deductible contributions have been accounted for.
- For individuals who have reached age 70.5, a Qualified Charitable Distribution (QCD) is a popular way to make charitable contributions (up to $100,000 annually) from your pre-tax retirement account. This helps reduce the current or future required minimum distribution (RMD) burden. Under the new law, the RMD age will be raised to he 75, while the QCD age threshold will remain at he 70.5.
- This law permits the transfer of a 529 plan to a Roth IRA. After 15 years, the 529 Plan assets can roll over to the Beneficiary’s Roth IRA. This is subject to Roth’s annual contribution limit and a total lifetime limit of $35,000. Rollover may not exceed the total amount prior to his five years ending on the date of distribution. Rollovers are treated as contributions against the annual Roth IRA contribution limit.
The Roth IRA contribution income limit will be waived for transfers from 529 plans, making it available to high-income 529 account holders and beneficiaries. This change provides a solution for individuals who may be concerned that 529 plans cost too much if their child receives a scholarship. This will allow the child to fund the Roth IRA without paying income tax or her 10% fine.
- From 2025, the SECURE 2.0 Act of 2022 will expand automatic enrollment in retirement plans, starting with a minimum contribution rate of 3%. Automatic enrollment in 401(k) plans has been shown to increase participation. With a few exceptions for small businesses, the bill would require eligible participants to be automatically enrolled in his 401(k) and 403(b) plans, requiring participants to You may choose to opt out of participation accordingly.
- The law allows employers to treat student loan payments as “selective deferrals” to match their workplace retirement accounts. This allows student loan borrowers to benefit from matching with employers even if they are unable to pay their own retirement benefits.
- From 2024, defined contribution pension plans will be able to add an emergency savings account, a designated loss account, eligible to accept contributions from non-highly compensated employee participants. Contributions are limited to $2,500 per year (or less as set by his employer), his first four withdrawals per year are tax-free, and there are no penalties. Contributions may be subject to employer matching, depending on plan rules.
SECURE 2.0 opens up more opportunities for retirement savings, but it’s important to note that everyone’s financial situation is different. We recommend that you consult with your financial advisor or tax professional to understand how the SECURE 2.0 changes apply to your particular situation.
About the Author: Echo Huang
Echo Huang (CFA, CFP®, CPA) left China at the age of 20 with only $800 and the hope of realizing the American Dream. Today, as Founder and President of Echo Wealth Management, Echo helps the country’s top executives and entrepreneurs take the complexity out of their finances, giving them the confidence to follow their dreams and achieve their goals.her book The story of immigration and financial freedom of one woman who owns her future aims to give you the tools and education to think right about your money, identify who you should include on your finance team, and provide insight into what each one should offer. .
