![]() Pensions are becoming a thing of the past. Small businesses with 10 or fewer employees, government plans, church plans and new businesses that have been in business for less than three years are exempt from auto enrollment. While existing plans are grandfathered in, new plans will have to automatically enroll participants in a 401(k) with a default contribution rate of at least 3% of an employee’s salary, which will increase by one percent annually until it reaches at least 10%. One of the changes likely to see the biggest impact in retirement outcomes down the road is 401(k) automatic enrollment. “While many of Secure Act 2.0’s changes allow more people to invest, there are potential pitfalls for people who take advantage of delayed RMDs,” says Laurence Koltikoff, professor of economics at Boston University and founder of retirement planning software Maxifi. The longer you delay distributions, the bigger they’ll need to be, which will increase your tax bill. Secure Act 2.0’s changes give you more flexibility for taking RMDs, but it’s best to take a broad view of your particular situation. Optimizing your RMD strategy is one of the toughest parts of retirement planning. And if you turn 74 after 2034, you must start RMDs at age 75. For people who turn 73 after 2030, and reach 74 before 2033, RMDs start the year you turn 74. If you turn 72 after 2022, and your 73rd birthday lands before 2030, the age when you begin taking RMDs is now 73. Secure Act 2.0 adjusts the ages when RMDs begin, depending on the year you were born. Depending on the amount of money you’ve saved in pre-tax accounts, these distributions could significantly boost your annual income and your tax bill. Under current law, you must start RMDs the year you turn 72. Required minimum distributions are Uncle Sam’s way of forcing you to take money out of your pre-tax retirement accounts and pay income tax on the distributions. Increased catch-up limits allow people to further strengthen their retirement fund before they leave the workforce. In the current economic environment, it can be hard to save for retirement in your lower earning years, especially if you’re raising children with all the associated costs. Improvements to catch-up contributions reflect the reality that more people are working later and fewer have access to pensions. Increases will be rounded down to the nearest $100-if the annual cost of living adjustment suggested raising the limit to $1,257 from $1,000, the actual catch-up contribution would be set at $1,200. Secure Act 2.0 introduces a new scheme for gradually increasing IRA catch-up contributions as costs of living rise. In the past, the standard contribution limit has gradually increased to match higher costs of living but catch-up contributions were static. IRA Catch-Up Contributions Indexed to Inflationįor IRAs, the standard contribution limit is $6,500 in 2023, and workers who are 50 or older can deposit an additional $1,000 in catch-up contributions. Today you can choose to deposit standard catch-up contributions in either pre-tax accounts or after-tax Roth accounts, but starting in 2024 any and all catch up contributions must be deposited in Roth accounts, with an exception for employees with compensation of $145,000 or less. These limits will regularly increase with inflation. ![]() Starting in 2025, there will be a new catch-up contribution limit for these older workers: the greater of $10,000 or 150% of the standard catch-up contribution limit. Secure Act 2.0 introduces a new category of catch-up contributions for workers aged 60 to 63. If they’re 50 or over, standard catch-up contributions allow them to save an additional $7,500 per year. In 2023, Americans can contribute $22,500 to qualified workplace retirement plans like a 401(k) or a 403(b). ![]() Secure Act 2.0 expands and improves catch-up contributions in a couple of ways. These bonus contributions are designed to help older workers who are behind on their retirement savings goals. If you are 50 or older, catch-up contributions allow you to save more money in individual retirement accounts and 401(k)s. Top 5 Retirement Reforms of Secure Act 2.0 1. ![]()
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