If you have a retirement savings plan, such as a 401(k) or IRA, you may be unaware of the vast changes that have been made to the rules governing these accounts.
The Secure Act 2.0, passed by Congress at the end of last year, contains at least 90 changes to retirement savings plans. Only a few will go into effect this year but more will take effect in 2024 and still more will become operative over the following three years.
Here are a few examples:
In 2025, people of a certain age will be allowed to contribute more to their plans in the form of “catch-up” contributions.
In 2026, the ABLE plans for the disabled will increase the age of disability onset from 26 to 46.
In 2027, low-income savers will be eligible for a government match to their retirement plans.
Most significant changes
What changes are the most important for consumers to understand? Taylor Kovar, a certified financial planner and CEO of Kovar Wealth Management, says one of the most important changes is the increase of the Required Minimum Distribution (RMD) age from 72 to 75.
“Simply put, this provides more time for your retirement savings to mature, which should result in a boost to your nest egg,” he told ConsumerAffairs.
The new law also introduces an automatic enrollment feature for 401(k) plans aimed at ensuring more employees contribute to their retirement savings right from the start.
“While this is not required, and employees can choose to opt out, it's big a step towards fostering a more universal culture of saving,” Kovar said.
A lighter penalty
Another positive change is a reduction in the penalty for not taking the correct RMD. Currently, the penalty is 50% of the shortfall. The new law reduces it to 25% – just 10% if made up in a “timely manner.”
Retirement savers should consider one of the changes taking effect this year. In 2023, you can contribute an extra $7,500 per year if you are at least 50-years-old.
If you are between the ages of 60 and 63, you can make an additional catch-up contribution of $10,000 – or 50% more than your regular catch-up contribution, whichever is greater.
Just getting started on a retirement savings path? Check out ConsumerAffairs resources here, here and here.
