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Changing the Way You Save for Retirement

February 14, 2023

The EARN Act (Enhancing American Retirement Now), aka SECURE 2.0, was signed into law late 2022.  This act builds upon the original SECURE Act of 2019.  The Setting Every Community Up for Retirement Enhancement Act (SECURE) was designed to help individuals plan and save for a more secure future. 

The 2019 legislation altered the rules around saving and withdrawing money from your retirement accounts. The new 2.0 Act provides a slate of changes that could help strengthen the retirement system, creating new flexibility and accessibility.

There are a dozen or so key provisions in the new legislation.  Many of the effective dates vary, some are effective immediately in 2023 and others will begin over the next few years.  A few of the key takeaways from the new act:

  • The age to start taking RMDs increases to age 73 in 2023
  • Reduced penalties for failing to take an RMD
  • Rollovers of 529 Plan balances to Roth IRAs
  • New rules for qualified charitable distributions (QCDs)

 New Distribution Rules

 Effective January 1, 2023, the threshold age that determines when individuals must begin taking required minimum distributions (RMDs) from traditional IRAs and workplace retirement plans increases from 72 to 73 (and to 75 in 2033). As a result, individuals now can choose to delay taking their first RMD until April 1 of the year following the year in which they reach age 73. From that point on, RMDs must be received each year by December 31.

Starting in 2023, if you miss an RMD for some reason, the penalty tax drops to 25% from 50%. If you fix the mistake promptly, the penalty may drop to 10%.

Plan participants can use retirement funds in an emergency without penalty or fees. For example, starting in 2024, an employee can get up to $1,000 from a retirement account for personal or family emergencies. Other emergency provisions exist for terminal illnesses and survivors of domestic abuse.

Revised Roth Rules

529 to a Roth. Starting in 2024, pending certain conditions, individuals can roll a 529 education savings plan into a Roth individual retirement account (IRA). Therefore, if your child receives a scholarship, goes to a less expensive school, or does not go to school, the money can get repositioned into a retirement account. However, rollovers are subject to the annual Roth IRA contribution limit. Roth IRA distributions must meet a five-year holding requirement and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. Tax-free and penalty-free withdrawals are also allowed under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.7

Qualified Charitable Distributions (QCDs)

 Under current law, individuals age 70-1/2 and older can direct up to $100,000 in distributions per year from a traditional IRA to qualified 501(c)(3) charitable organizations. Effective in 2024, a new provision will allow the maximum contribution amount to increase based on the inflation rate.

 In addition, beginning in 2023, individuals have a one-time opportunity to use a qualified charitable distribution (QCD) to fund a Charitable Remainder Unit Trust (CRUT), Charitable Remainder Annuity Trust (CRAT) or a Charitable Gift Annuity (CGA). Up to $50,000 (indexed for inflation) can be directed using this one-time distribution option. If a distribution is directed to a CRUT or CRAT, it must be the only form of funding for that trust.

 As a result of the SECURE 2.0 Act, rules around retirement savings and retirement plan distributions will change over the course of the next few years. The new provisions could impact how you save and withdraw money from your retirement accounts.

While we outlined just a few of the key changes in the SECURE Act 2.0, we encourage you to meet with your CAS advisor to determine the impact on your own retirement plan, if any., December 23, 2022