There are a number of pleasant surprises in the bundle of new retirement rules collectively known as SECURE 2.0. These provisions included in the $1.7 trillion federal spending bill passed in December 2022 provide a slate of changes that could help strengthen the retirement system and Americans’ financial readiness for retirement.
Some of the most significant changes include raising the starting age for RMDs, increasing catch-up contributions, and new rules for qualified charitable distributions (QCDs).
Required Minimum Distributions (RMDs)
From January 1st, 2023, the age at which you are required to start taking money out of your traditional IRA or workplace retirement plan went up from 72 to 73. This change means you have more time to let your money grow tax-free before you have to start taking distributions.
An Increase in Catch-Up Contributions
Catch-up contributions allow people aged 50 or over to set aside extra money for workplace retirement plans and IRAs beyond the standard limit. But new proposals would create another form of catch-up contribution for those aged 62 to 64 (under one plan) or 60 to 63 (under another plan). This would allow you to add an extra $10,000 to your 401(k) or 403(b) plan; this maximum would be indexed for inflation in future years.
These catch-up contributions would need to be made on an after-tax basis, except for those who earn $145,000 or less. In addition, starting in 2024, catch-up contributions to IRAs, which are currently limited to $1,000 per year, would also be adjusted for inflation in $100 increments.
Qualified Charitable Distributions (QCDs)
QCDs are an often-overlooked planning opportunity for retirees to manage gifts and reduce taxes. If you’re 70½ or older, currently, you can direct up to $100,000 each year from your traditional IRA to qualified charities without paying taxes on the distribution.
Starting in 2024, the maximum contribution amount will increase based on the inflation rate, which means you can give even more to your favorite charities without tax penalties.
Remember, the effective dates of the new provisions vary; some are effective immediately and may impact your retirement savings and income strategy. So be sure to check with your financial advisor and see how and when you will benefit from SECURE 2.0.
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