Let’s dive into the recent changes in the world of retirement planning. Remember the SECURE Act of 2020? Well, welcome its successor, the SECURE 2.0 Act, signed off by President Biden on December 29, 2022. Here’s what’s new:
SECURE Act 2020 Recap
- Age Shifts: Pushed the start date for minimum distributions from retirement accounts from 70 ½ to 72.
- No Age Limit: You can keep contributing to retirement accounts regardless of age.
- 10-Year Rule: Most heirs must withdraw inherited retirement cash within ten years of the original owner’s passing.
Are there exceptions? Absolutely. Spouses, beneficiaries within the 10-year age gap, the account owner’s minor children, and individuals with disabilities or chronic illnesses.
What’s new in SECURE 2.0 Act?
- Age Leap: By 2033, you’ll start those minimum distributions at 75.
- Soft on Penalties: Missed a distribution? The penalties are friendlier.
- Auto-Enroll: Say hello to automatic 401(k) & 403(b) plan enrollments. Not a fan? Opt out within 90 days.
- Over 50? Enjoy higher catch-up contributions ($7,500 in 2023)!
- Flexi Payments: More freedom in annuity payments.
- Care Contracts: Early distributions for long-term care without penalty? Yes, please!
- Charity Win: Name qualified charities as beneficiaries under specific circumstances.
- Student Loan Repayment Benefits: From 2024, plan sponsors can match your student loan repayments.
- Rollover Perks: From 2024, rollover 529 plans into a Roth IRA (up to a $35,000 lifetime limit).
Exceptions to Early Distribution Penalties
Look out for exceptions like qualified births, adoption expenses, terminal illnesses, disaster reliefs, personal emergencies, and support for domestic abuse victims.
How Does It Impact You?
Under the old rules, inherited retirement beneficiaries could spread out their distributions. Now? The 10-year distribution window could mean more taxes for your beneficiaries. But fear not! Eligible beneficiaries still have chances to enjoy future growth of these retirement plans.
Things to Consider
- Reevaluate Trusts: Check if your trust structures align with these new rules.
- Consider More Trusts: Make the most of trusts to protect your beneficiaries.
- Review Beneficiaries: Keep your beneficiary details up-to-date.
Were you recently married or divorced? Check beneficiary designations to avoid any future mix-ups.
If you’ve got a big heart for charity, now might be your golden chance to combine your retirement plans with charitable giving. The SECURE Act changes can be overwhelming, but together, we can navigate the best path for your hard-earned money.
If you or a loved one have questions about SECURE 2.0 or want to update your retirement plan, we recommend contacting your local estate planning attorney today.