SECURE 2.0 Act of 2022 Changes RMD Requirements, Increases Catch-up Contributions
The early part of a new year is a good time to review finances and make investment decisions.
This year, it’s particularly important, given that the passage of the SECURE 2.0 Act of 2022 in December 2022 has altered the landscape for your retirement savings.
For one, you can sock away more money in retirement accounts and leave it in such accounts longer.
Changes to catch-up contributions and RMD changes are two key provisions of the SECURE 2.0 Act that may influence your long-term retirement planning.
Catch-up Contributions
Those over 50 can now put more away for retirement by contributing an extra $7,500 per year into 401(k) accounts. In 2025, that amount will increase to $10,000 each year, indexed for inflation, for those aged 60 to 63 who are contributing to a workplace plan.
In addition, starting in 2024, for those making more than $145,000 per year, catch-up contributions will have to be made on a Roth (after-tax) basis.
Required Minimum Distributions
The SECURE 2.0 Act raises the age for required minimum distributions (RMDs) to 73 starting this year, which allows you to delay taking money out of defined contribution accounts like 401(k)s and 403(b)s. That gives your retirement nest egg a couple more years to grow.
In 2033, you’ll be able to delay taking RMDs until age 75, and this year, the 50% penalty for not taking your RMD drops to 25%.
In addition, starting in 2024, the law eliminates the requirement that you take RMDs from Roth 401(k) accounts.
The SECURE 2.0 Act also includes a slew of other important changes designed to enhance people’s future retirement, including mandatory auto-enrollment in company-sponsored retirement plans, allowing part-time employees to participate in retirement savings programs, easing restrictions on emergency and hardship withdrawals from retirement accounts, and the establishment of a searchable database to help people locate lost retirement plans.
Given that each person’s financial and tax situations are unique, it’s best to sit down with your financial planner and tax advisor to determine how the SECURE 2.0 Act affects you and how best to take advantage of its provisions.
To learn more about the SECURE 2.0 Act of 2022, see:
Investopedia (https://bit.ly/3HtlRuF)
Kiplinger (https://bit.ly/3YePNkR)
National Tax-Deferred Savings Association (https://bit.ly/3RndlSi)
Senate Finance Committee (https://bit.ly/3wNpc2E)
TIAA (https://go.tiaa.org/40mu8sY)