The Secure 2.0 Act of 2022
Greetings!
While most of us were enjoying the holidays with friends and family, Congress passed the SECURE 2.0 Act of 2022, within the Consolidated Appropriations Act of 2023, a major overhaul of retirement vehicles and employer-sponsored plans nearly affecting all Americans with retirement accounts. While not exhaustive, below is a summary of key provisions we wanted to highlight as it relates to your financial planning.
Required Minimum Distributions (RMDs)
In 2023, the age requirement to begin taking RMDs will increase from age 72 to age 73, and to age 75 in 2033. In addition, the penalty for not taking an RMD is reduced from 50%, currently, to 25%, and in some cases to 10% if the error is corrected "in a timely manner." Effective 2024, Roth accounts in employer-sponsored plans, such as 401(k) plans, will be exempt from the RMD rules while the participant is alive.
Catch-up Contributions
In 2023, participants age 50 and older can contribute an extra $7,500 per year annually into their 401(k) account. Effective 2024, all catch-up contributions for participants earning more than $145,000 from prior year wages, will have to be made on a Roth basis. Additionally, IRA/Roth IRA catch-up contributions (now $1,000) will be linked to inflation and adjusted in $100 increments. Lastly, effective 2025, a “special” catch-up provision of the greater of: $10,000 or 150% of the “regular” catch-up contribution will be permissible for individuals ages 60-63.
Roth Contributions
In 2023, SEP IRA and SIMPLE IRA plans will allow Roth contributions. Also, plans will allow employer matching contributions to be made on a Roth basis. Even though this is law, it will take some time for the custodians to implement this change in reporting.
Emergency Savings
Under the new law, plan participants generally will be able to withdraw up to $1,000 per year from their retirement savings account for emergency expenses without having to pay the 10% tax penalty for early withdrawal if under age 59½. In addition, companies could allow employees to set up an emergency savings account through automatic payroll deductions. These contributions would be limited to $2,500.
529 Plans
Unused or leftover funds in 529 plans can potentially be rolled over to the beneficiary’s Roth IRA. There are many caveats to this rule including the plan being in place for a minimum 15 years, the annual rollovers cannot exceed the annual Roth IRA contribution limit, and the total lifetime rollovers cannot exceed $35,000. It appears earned compensation and the income eligibility thresholds normally applicable to Roth IRA contributions do not apply to these transfers.
Student Loan Debt
In 2024, student loan payments could count as retirement contributions for the purpose of qualifying for matching contributions in a workplace retirement account. This means employers will be able to make contributions to their company retirement plan on behalf of employees who are paying student loans instead of saving for retirement.
Automatic Enrollment
In 2025, employers who start new retirement plans will be required to automatically enroll employees in their retirement plan at a rate of at least 3%, but not more than 10%. Excluded from this requirement are new companies in business for less than 3 years and businesses with 10 or fewer workers.
Qualified Charitable Distributions
QCDs remain permissible starting at age 70 ½ for IRA owners. However, effective 2024, the amount, currently limited to $100,000, will be linked to inflation and adjusted in $1,000 increments for those who take advantage of this IRA charitable strategy.
As many of the above provisions become effective over the coming years, requiring document amendments by employer-sponsored plans, stay tuned for more information from us and your employer’s plan custodian.
If you have any questions on the Secure 2.0 Act, please feel free to reach out to your advisor directly.
Sincerely,
Benchmark Financial
SEC Registration does not imply a certain level of skill or training.
The information provided herein is for general informational purposes only and is intended for your personal use and should not be circulated to any other person without our permission and any use, distribution, or duplication by anyone other than the recipient is prohibited. No portion of this commentary is to be construed as an offer or solicitation to buy or sell a security, or the rendering of personalized investment advice. The views and strategies described herein may not be suitable for all investors and are subject to investment risks. The content is developed from sources believed to be providing accurate information. The information contained herein should not be relied upon in isolation for the purpose of making any investment decision.
We believe the information contained in this material to be reliable and have sought to take reasonable care in its preparation and conducted reasonable due diligence to ensure the third parties’ performance is not materially inflated or incorrect; however, we do not represent or warrant its accuracy, reliability, or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. We do not make any representation or warranty regarding any computations, graphs, tables, diagrams, or commentary in this material which are provided for illustration/ reference purposes only. These views, opinions, estimates, and strategies expressed in it constitute our judgement based on current market conditions and are subject to change without notice. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Investors may get back less than they invested, and past performance is not a reliable indicator of future results.
Data which may be found in this document is based on our research and should not be taken as a forecast or an estimate of likely future returns. Any reference to a market index is included for illustrative purposes only, as an index is not a security in which an investment can be made.
Investments involve some sort of risk including potential loss of principal; diversification alone cannot guarantee against loss. Any projected results and risks are based solely on hypothetical examples depicted. Forward-looking statements should not be considered guarantees or predictions of future events. More complete information is available, including product profiles, which discuss risks, benefits, liquidity, and other matters of interest. The value of any investment may fluctuate as a result of market changes. Past performance is no guarantee of future results, and there can be no assurance the investment strategies discussed herein will prove profitable.
All opinions, estimates, investment strategies and views expressed in this document are subject to change without notice information. The recommendations made for your customized portfolio may differ from any asset allocation or strategies outlined in this document. Benchmark Financial does not guarantee the future performance of any portfolio, guarantee any specific level of performance, or guarantee any strategy or overall management will be successful or that the client’s investment objectives will be met.
Benchmark Financial is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. Investment Advisory Services offered through Benchmark Financial Wealth Advisors LLC, an SEC Registered Investment Advisor. Insurance services offered through Benchmark Financial Insurance Advisors LLC. The Benchmark Financial Wealth Advisors ADV Form 2A, 2B & Form CRS, which describe the services offered, fees charged and any conflicts of interest, are available upon request or online at www.bfllc.com. Additional information about Benchmark Financial and our advisors is also available online at www.adviserinfo.sec.gov.