If you are approaching retirement age, you may be interested in the changes implemented due to a government funding bill.
The Secure 2.0 retirement provisions, numbering in the dozens, were included in the omnibus spending bill that passed Congress last week. The reforms are meant to benefit people who are saving for or are already in retirement, but some may be of particular use to those on the cusp of retirement.
This is what you need to know.
Catch-up contributions to a 401(k) are permitted for those 50 or older under the current law. The cap is adjusted annually for inflation and will be $7,500 in 2023 and $6,500 in 2022. In addition to the standard 401(k) contribution limits of $20,500 for 2022 and $22,500 for 2023, those sums are available.
As of January 1, 2025, employees aged 60 to 63 will be eligible to make catch-up contributions to their place of work plan of up to $10,000 or 150% of the regular participation, whichever is greater, with the amount being indexed to inflation.
Remember that if your annual income is more than $145,000 (indexed for inflation), you will be required to contribute the total amount of your catch-up contribution to a Roth IRA, regardless of your age. Contributions to a Roth 401(k) or individual retirement fund aren’t tax-deductible, but qualified withdrawals in retirement are free of income tax.
In contrast, the catch-up amount for IRAs has remained at $1,000 annually since 2006. IRA contribution limits are lower, at $6,000 for 2022 and $6,500 for 2023.
It may go up yearly after 2024 due to Secure 2.0’s inflation indexing.
At the moment, a “matching” contribution from an employer, such as a 100% match up to 5% of salary, can only be made to a traditional 401(k) and not a Roth 401(k). That means the money you get from your employer is taxable when you cash it out in retirement. In the coming year, that will shift.
The age at which certain minimum withdrawals must be made annually from retirement accounts is 72.
Thanks to Secure 2.0, the new minimum ages are 73 in 2023 and 75 in 2033. Beginning in 2019, there will be a new penalty for failing to take these RMDs: In most cases, it will decrease from 50% to 25% of the amount that should have been withheld.
The delay in when RMDs must begin can also provide planning opportunities even if RMDs are a long way future for you.
The RMD requirement will no longer apply to Roth 401(k) and other employer-sponsored plan accounts beginning in 2024. Roth IRAs have never had required minimum distributions (RMDs) during the owner’s lifetime, but Roth 401(k)s have.
Additional changes may affect your retirement plans because Secure 2.0 contains more than 90 provisions. For instance, qualified charitable distributions and annuities have undergone changes that could affect your retirement planning.
Secure 2.0 also mandates that the Labor Department establish, within two years, an online, searchable “lost and found” database for retirement plans, which may be helpful if you’ve misplaced information about the one you had at a previous employer.