New Rules to Impact IRA/401(k)s
Congress just passed the $1.7 trillion spending bill. It contained significant changes to retirement plans that you should be aware of. These new regulations are amendments to the Secure Act of 2019 and are known as the Secure 2.0 Act of 2022. “Secure” is short for “Setting Every Community Up for Retirement Enhancement”. There are over 90 different changes being made. Here are some that are most likely to impact your retirement planning.
The bill raises the age required to withdraw funds from tax-deferred retirement accounts. The required minimum distributions (RMD) age increased from 72 to 73 on January 1st of this year. It will raise to 75 on January 1, 2033. The law also reduced the penalty for NOT taking RMDs. The steep 50% penalty is now 25%. That drops down to 10% if the error is fixed in a ‘timely manner’.1
The emergency withdrawal penalty faced by employees under 59-and-a-half changed. It will no longer apply to withdrawals under $1,000 annually. This rule takes effect in 2024.
The new law changes the ‘catch-up’ contribution rules. Currently, people 50 and over can contribute an additional $1,000 each year over their standard limit. Starting in 2024, you’ll be able to contribute an amount that is indexed to inflation. In 2025, contribution limits will increase for people aged 60-63. They’ll be able to contribute up to $10,000 per year or 50% more (whichever is greater) than the catch-up contribution available to those 50+.2
Student Loans and 529 Accounts
The bill also affects those paying back student loans. Employer plans can credit student loan payments with matching donations to 401(k) plans. Borrowers would be able to save for retirement just by making their student loan payments.
The act helps if beneficiaries have anything left over in their 529 education accounts. Currently, there is a 10% penalty for any withdrawals not used for education. Now, they will be allowed to roll over up to $35,000 in total into a Roth IRA.3
The bill replaces the Saver’s Credit. The Saver’s Credit is a nonrefundable tax credit meant to help low-income earner’s retirement contributions. Beginning in 2027, those who qualify will receive a federal matching contribution to a retirement account instead of the credit.4
The Secure 2.0 Act acknowledges the difficulties Americans are facing when it comes to preparing for retirement. Fidelity’s Retirement Preparedness Measure puts 55% of Americans in the yellow or red (fairly or poorly prepared). Those Americans are in danger of not fully covering even estimated essential expenses like housing, health care, and food in retirement.5
The law focuses on making it easier to contribute to and access your retirement funds. The package tries to encourage employers to offer retirement accounts. Small businesses can now receive increased tax write offs and other incentives.
Yet, the bill does not address Social Security. The funds in the Social Security trust will begin running out in 2034. This would result in retirees receiving only 77% of full benefits according to a 2022 Social Security Trustees report.6
The ability to increase IRA contributions is happening at an opportune time. Gold is set to surge into a long-term bull run. Investors can act now to acquire precious metals before the price shoots up. You can gain all the wealth protection benefits of gold along with the tax-deferred growth potential of an IRA. Contact us today to learn how you can take advantage of the new law with our Gold IRA.