We’ve been told nothing will happen in Washington. But the Omnibus Appropriations Bill passed a number of sweeping laws, including major changes to retirement plans almost immediately. Included in the bill is Prepare all communities for the SECURE 2.0 ActAnd a key provision of the law, the new RMD age, is set to come into effect on January 1, 2023 (next week).
Below are more than 12 of the 90 changes to the omnibus bill that could impact your retirement plans. (is here full breakdown Out of a $1.7 trillion bill with over 4,000 pages. )
NOTES AND UPDATES: The bill has been passed and NewRetirement is making every effort to update the NewRetirement Planner with the new RMD rules on January 1st or soon thereafter.
1. The minimum required distribution (RMD) age for IRAs has been increased
A Required Minimum Distribution (RMD) is a mandatory withdrawal from your employer’s retirement savings plans like IRAs, SEP IRAs, SIMPLE IRAs, and 401ks that must be made after a certain age. The RMD rule is designed to ensure that people can use some of their retirement savings for the rest of their lives, and the accounts are tax-deferred rather than tax-exempt.
If you were born, depending on your date of birth, your RMD age increases as follows:
- Prior to January 1, 1951, RMD was already started and nothing changed
- Between 1 January 1951 and 31 December 1959 the RMD must start at age 73.
- From 1 January 1960, RMD starts at age 75
Delaying the start of RMD may be beneficial for some people. If you can afford to leave your money alone, you can reduce your short-term taxes and keep your money for future use. potential for future tax increases.
How will this change affect you? These changes may affect future income and taxes.
Use NewRetirement Planner to:
2. Penalties for not taking RMD are reduced
Penalty for not using RMD is reduced.
If you are not currently receiving distributions, you will be subject to 50% sales tax. This he reduces to 25% and further to 10% if the error is corrected “in time”.
Reduced penalties will take effect immediately upon passage of the law.
3. Increased Saving Contribution Limit
IRAs and 401ks have contribution limits. This means that tax benefits only apply up to a certain amount of money saved in each plan. Once you turn 50, you can increase your contribution limit in the form of a “catch-up” contribution.
Today, people over the age of 50 can contribute an additional $1,000 to their retirement account each year, above the standard limit. Beginning in 2024, older Americans will be able to contribute an additional, inflation-linked amount instead of a flat $1,000 increase.
Starting in 2025, SECURE 2.0 will increase these limits to $10,000 or 50% more than the regular catch-up amount if you’re 60, 61, 62, or 63. After 2025, these amounts will be indexed to inflation.
4. More opportunities for emergency savings in employee accounts
Currently, there are legal barriers that prevent employers from automatically enrolling employees in emergency savings accounts within 401k plans. A new law allows employees to store up to $2,500 in their Roth accounts and withdraw them without tax or early withdrawal penalties.
Emergency savings are important to your short-term and long-term financial health.
5. You can roll over from your 529 account to a Roth IRA
Good news if you have a 529 plan in your name and no future education expenses.
Section 126 of the bill allows partial tax- and penalty-free rollovers from 529 college savings plans to Roth IRAs. A 529 plan beneficiary may carry forward up to $35,000 from his 529 account in his name to the Roth IRA over his lifetime, subject to the Roth IRA’s annual contribution limits, and the 529 account has been open for more than 15 years. is needed. .
6. Auto-enrolment required for new retirement accounts
Currently, enrolling in a company’s retirement savings plan is something that you should actively sign up for.
To encourage participation in retirement savings plans, the Omnibus Act requires most new 401(k) or 403(b) plans to automatically enroll workers and pay from 2025 at least 3% to up to 10% of their salary. Saving % is compulsory. We will also increase the savings rate by 1% annually until it reaches 10% to 15%.
Automatic enrollment has been shown to increase participation in savings plans. It’s important to note that workers can opt out.
7. Employers can match retirement savings if employees are paying off student loans
If your employer currently offers matching, it means they will match or contribute an amount equal to a certain amount you have in your retirement savings account.
However, many employees struggle to pay off student loans or save for retirement.actually 2019 study According to a study by the Massachusetts Institute of Technology Age Lab and the financial services organization TIAA, 84% of adults say their student loans are limiting their retirement savings.
The new bill would allow employers to make matching contributions to their employees’ retirement plans based on eligible student loan payments.
This provision will come into effect on December 31, 2023.
8. Significant increase in QLAC
The amount of IRAs available to purchase a Qualified Longevity Annuity Agreement (“QLAC”) is increasing. A QLAC is a deferred annuity funded from eligible retirement savings.
Currently, the maximum amount you can put into QLAC is $135,000 or 25% of the value of your retirement account, whichever is less. Secure 2.0 removes the 25% cap and increases the maximum amount allowed in QLAC to $200,000.
9. Some 401k funds can be used to pay premiums for long-term care insurance
The measure would allow participants in 401k plans to pay up to 10% of “unexpired unpaid benefits,” or up to $2,500 in total, for inflation-adjusted long-term benefits, as long as the insurance meets federal quality. You can pay premiums for long-term care insurance. standard.
Long-term care can be prohibitively expensive and can quickly eat up your retirement savings. Planning for this potential expense is financially wise and can give you greater peace of mind about your future.
Learn more about the cost of long-term care, the cost of long-term care insurance, and alternatives to insurance.
10. Partial No-Penalty Emergency Withdrawals From Retirement Accounts Will Be Enabled
The new invoice will allow withdrawals of up to $1,000 per year and will be repaid within 3 years. (However, additional withdrawals cannot be made during the repayment period.)
The provision is intended to make tax-deferred retirement savings more flexible in hopes of encouraging more people to save.
11. You will be able to search for lost retirement funds
The SECURE 2.0 Act of 2022 directs the Department of Labor to create a searchable database to help with retirement benefits that may have gone untraceable. The database will not be available for another year or two.How to check if you lost or forgot your retirement account
12. Businesses will be able to offer savings incentives
The new bill will allow employers to offer small financial incentives (such as gift cards) to encourage participation in employer-sponsored retirement savings plans.
If you haven’t started RMD, omnibus bill changes may affect your plans. If the bill is passed, be sure to evaluate your future retirement income, tax and loss conversion plans.
The NewRetirement Planner will be updated as soon as possible.
