Planning for retirement? Here are the big changes for 2023.
Over the holidays, Congress signed SECURE 2.0 into law. This new ruling has made some big changes to financial planning, especially when it comes to Roth accounts and retirement. Here are some of the highlights:
1. RMDs delayed to age 73
Required Minimum Distributions (RMDs) were delayed to 73 starting January 1st 2023. This means that if you are approaching retirement, you do not need to take a distribution from your taxable qualified account until age 73. This may not sound like a huge deal, but it is very helpful with Roth conversion planning, providing another year of complete control over your qualified assets.
2. Roth and Traditional IRA contribution limit increases
For years now, the contribution limit for these types of accounts has been $6,000. This year, that contribution limit has increased to $6,500. The catch up provision (if you are over age 50) is still $1,000, meaning you can contribute $7,500 annually into an IRA.
3. Higher Employer Plans contribution limits
Any employee with a qualified retirement plan account (401K, 403B, many 457s, THRIFT) can contribute up to $22,500 this year (a $2,000 increase). The catch up provision for those over age 50 is $7,500.
4. 529 plan conversions
529s have always been a great college savings plan, but they in the past have risked being overfunded. This is especially problematic since any unused 529 plan funds are subject to taxes and penalties when used for expenses that aren’t educational. Fortunately with this new provision you can convert up to $35,000 of unused 529 funds into a Roth IRA. Woohoo!
5. Simple and SEP IRAs now have a Roth option
These plans are great for small business owners and are fairly inexpensive to run. The drawback of these plans in the past has been their lack of ability to contribute to Roth. Not anymore. If your company uses these plans you now have the option to contribute to Roth. Your Simple or SEP IRA will need to provide this feature, since this is not automatic.
6. Employer matching can be Roth or pretax
All employer matches in the past have been pretax by law. However, employers now have the option to make their match Roth. SECURE 2.0 doesn’t require employers to offer this, but it is an option.
Questions? Please reach out and we'll be happy to help!
Sources:
https://www.kiplinger.com/retirement/bipartisan-retirement-savings-package-in-massive-budget-bill