The SECURE 2.0 Act was signed into law last year and contains retirement-related provisions that go into effect this year, altering the way Americans can save and withdraw money from retirement accounts. These changes come at a time when Americans are facing retirement income shortfalls. A study from the World Economic Forum found that by 2050, the U.S. will face a $137 trillion retirement income gap (the difference between what retirees should have saved and what they will have actually saved by retirement). If these findings hold true, retirees in six major economies (including the U.S.) would outlive their savings by an average of eight to 20 years. To help Iowans prepare for the changes and plan accordingly, here are some ways the new provisions will impact retirement planning and savings:
- The Required Minimum Distribution (RMD) age increases: The required minimum distribution age from traditional Individual Retirement Arrangements (IRAs) and workplace retirement plans increases from age 72 to age 73 in 2023. Then in 2033, the RMD increases to age 75. IRA owners turning age 72 this year are not required to take an RMD in 2023. This allows you to defer mandatory distributions another year or more for those not yet 72.
- Penalty for Failure to Take RMD Decreases: The penalty for failing to take an RMD will decrease to 25% of the RMD amount, from 50% currently, and 10% if corrected in a timely manner for IRAs.
- New Opportunities for Qualified Charitable Distributions (QCDs): Beginning in 2023, a one-time gift of $50,000 to CRUT, CRAT, or Charitable gift annuity is permissible. Charitable giving can help those in need or support a worthy cause and can also lower your income tax expense. The QCD current limit of $100,000 will be indexed for inflation effective in 2024. People aged 70 ½ or older can contribute from their IRA directly to a charity and avoid paying income taxes on the distribution.
- Roth Contribution Updates: Effective this year, Roth Contributions can now be made to SIMPLE and SEP IRAs. Previously, these plans only allowed for pre-tax contributions. The ROTH SIMPLE or SEP option will allow you to save for retirement and get tax-free growth and tax-free withdrawals in retirement.
“Regardless of age, it is important that all individuals understand these policy changes to ensure they are planning for retirement and leveraging new opportunities to reach their savings goals by retirement age,” said John Gonner, CEO of First Community Trust (FCT). Are you ready to discuss how these changes will impact your retirement? Contact us today!