BY KRISTIN HOVENCAMP
In 2019 Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act to spotlight long-term retirement savings programs. The Act changed various retirement account rules and financially impacted Americans at every age. The most notable revisions were raising the age of Required Minimum Distributions (RMDs) and eliminating age limits for traditional IRA contributions.
Building upon the 2019 broad legislation, Congress recently signed The SECURE Act 2.0. The law went into effect at the end of 2022. The new Act is Washington’s most recent move to encourage individuals and employers to better prepare for retirement. The Act aims to improve access to retirement plans and savings, simplify administration and reporting requirements, and preserve retirement assets.
Though the SECURE Act 2.0 contains over 92 new retirement savings provisions. A key takeaway is the significant adjustments made to the RMD rules. The age at which individuals must begin taking RMDs increased from 72 to 73 starting January 1, 2023, and 75 effective January 1, 2033. This change allows retirement assets to grow tax-deferred for an additional year.
Your RMD is the minimum amount you must withdraw from your retirement account each year, starting at age 73. Retirement plans include IRA, SIMPLE IRA, SEP IRA, or employer retirement plans, such as a 401(k). Contributions to retirement accounts are made pre-tax, and distributions are taxed as ordinary income.
The SECURE Act 2.0 changed another essential provision relating to RMDs. The 50% penalty for failing to take an RMD decreased to 25% of the RMD amount not taken. Even better news, the tax will be reduced to 10% if corrected within two years. Remember to submit a corrected tax return. These new rules went into effect in 2023.
SECURE Act 2.0 highlights Congress’s commitment to helping individuals and employers prepare for a more secure future. The Act offers numerous financial planning tools to take advantage of, including the highlighted changes to RMDs.
Kristin Hovencamp is an Investment Executive at RJFS and Director of Business Development with HAZLETT WEALTH MANAGEMENT, LLC, which is independent of Raymond James and is not a registered broker/dealer. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investing involves risk, and you may incur a profit or loss, regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. Please discuss any tax or legal matters with the appropriate professional. 675 Sun Valley Road, Suite J1 + J2 Ketchum, Idaho 83340 208.726.0605. HazlettWealthManagement.com