As you may or may not know, 2023 is the stage point for a significant variety of major tax and retirement rules.  We all need to not just know about these directives, but to be knowledgeable enough to take advantage of these significant changes as well.  While the Secure Act 2.0 is effective beginning in 2023 which hosts a variety of multiple directives, there are other extremely important directives which will be effective in many years past 2023. It’s  extremely important for everyone to understand and know what these rules are – no matter what your age is. 😊 In addition to an overview of Secure 2.0, here are some other extremely important items you need to be knowledgeable about for 2023.

2023 CONTRIBUTIONS FOR RETIREMENT ACCOUNTS

Beginning this year, the contribution limits for employer plans: 401k’s, 403b’s, and 457’s have risen from 2022’s maximum contribution of $20,500 to $22,500. In addition to that rise, for employees aged 50 and up, the catch-up provision has also increased from 2022’s $6500 to $7500.  For employees who are 50+, the maximum annual total contribution is now $30,000.   Fantastic!  And keep in mind that if you are turning 50 years old in 2023 – even if your birthday is December 31, 2023, you can sign up at any time to take advantage of the catch-up provision. For IRAs- whether traditional deductible or Roth’s, the contribution limits have also risen as well. For 2023, the maximum contribution is $6500 vs 2022 of $6000 and for those age 50+, the catchup provision remains the same at $1000 for a total of $7500.

Secure 2.0 Major Updates

First off as a background check, the Secure Act, which was initiated in 2019, was driven by the need for Americans to have a stronger focus on their retirement planning objectives. Why?  Because #1) The vast majority of Americans have been maintaining a longer life expectancy and, #2) Unfortunately many Americans did not have sufficient funds for the 3rd stage of their lives: Retirement.  So, the Secure 2.0 Act has increased the desire to meet the needs of our country’s residents. 

The updated version of the Secure Act: Secure 2.0 contains 90 new provisions, some of which will take effect in 2023, but a substantial number of rules will be implemented beyond this year. But for now, I will address just a handful of important rules you need to know and will keep you updated over time.

First off:  the RMD (Required Minimum Distribution) rule has been upgraded from age 72 to age 73 beginning January 2023.  This is applicable to anyone who has not turned 73 by December 31, 2022.  Additionally, a higher RMD age will be implemented 10 years from now, in 2033 to age 75. Again, the rule is the same, as long as one is not age 75 by December 31, 2032, they are eligible to step up their RMD distribution.

Next up: Effective January 2, 2024, participants can withdraw funds from their retirement accounts for emergency purposes, with no penalties included.

Here are just a few of the key rules, and I will update you about the others later this year:

In the event of domestic abuse, participants can withdraw up to 50% or a minimum of $10,000 from retirement accounts. Taxes will be withheld; however, a 10% penalty will not be applied. The account holder can elect to re-deposit the funds back into the account within a 3-year period and the paid taxes will be reimbursed and deposited back into the account.

Employees can access up to $1,000, only once per year, from retirement savings for emergency personal or family expenses without paying the 10% early withdrawal penalties, however regular taxes will be withheld.  The participant can deposit the funds back into the account within a 3-year period, however until it is repaid, cannot withdraw additional funds.

Employees can set up a Roth emergency savings account for up to $2,500 per participant.

For employees whose income is over $145,0000, there is a new provision of the Catch – Up rule.  They are now obligated to deposit at the very least, the Catch-Up deposit into the Roth.

Finally, a major notification about 529 Plans and Roth IRA accounts.  Account holders can make a major gift to the 529 beneficiary, by transferring on a tax-free basis, up to a maximum of $35,000 from a 529 plan to a Roth over a period of time. The important rules are that the account must have been held for at least 15 years and the transfers cannot exceed the annual maximum contribution. For example, the maximum contribution to a Roth IRA for 2023 is $6500, so the transfer can be made on a tax free basis to the Roth and is a great gift idea for the owner’s child.

As noted earlier, there are a huge amount of updates to the Secure 2.0 Act which I will share with you later. For now, these are important items to have a knowledge base about and that can get your started on your 3rd Act Stage too. Cheers!