In its simplest form, a retirement plan can be split up into two parts, the accumulation phase, and the distribution phase. The goal is that you start early in the accumulation phase, so you don't need to skimp on the distribution phase. If you plan very well you may not need to take any money out of your tax-deferred retirement accounts. The government will only allow this for so long before it's time for your Required Minimum Distribution or RMD.
For some time, the age that you needed to take your RMD was 70.5 but that recently changed with the Secure Act to the age of 72. That means that the year you turn 72 is the first year that you are required to start spending down certain tax-deferred assets. The irs.gov definition of RMD goes more in-depth about which accounts are subject to RMD and how to calculate the amount.
Recently the House of Representatives passed the "Securing a Strong Retirement Act" by an overwhelming margin of 414-5. Obviously, it is not law yet and needs to jump a few more hurdles but the large margin has given hope that it will do so.
Two highlights of this act are the RMDs would rise to age 75 over the next decade and catch-up contributions would increase for older Americans. There are a few other provisions that we will cover as well.
RMD Age Raising – Effective January 1 the age goes from 72 to 73. Then in 2030, the age will go to 74 and finally 75 in 2033. This means if you were born in 1958 or later your RMDs will need to start the year you 75. This could be a major benefit for retirees who do not want to tap into their tax-deferred savings. The extended time also gives you more time to implement tax strategies.
Increasing Catch-Up Provisions – For employees aged 62 to 64 the catch-up will increase from $6,500 to $10,000 starting in 2024 and will index to inflation.
Indexing Catch-Up Contributions for IRAs – This would also start in 2024. Currently, if you are 50 or older you can put an extra $1,000 into your IRA, but that amount is not indexed to inflation.
Matching Retirement Contribution to Student Loan Payment – A common issue for people trying to get out of student loan debt is having to choose between paying down their debt and contributing to their employer's retirement plan. This new act would allow employers to match an employee's student loan payment in the form of an equivalent contribution to the employee's retirement plan. This would go into effect on January 1.
Retirement "Lost and Found" – Creating a searchable database that can help people to find lost retirement accounts from previous employees.
Automatic Enrollment – Starting in 2024 employees would be auto-enrolled in certain retirement plans unless the employee decides to opt out. The auto-enrollment caps at 10% and plans that already exist are grandfathered into not complying.
There are some other details that will be available, but this act is geared towards making access to a financially secure retirement more of a reality for families. Taking advantage of the key provisions of this act could be the difference between retiring when you want and being forced to work a couple of extra years.
Navigating new laws and working them into your overall plan can be confusing if you try to do it yourself. Lean on us for help. Schedule a 15-minute discovery call with us.
The opinions voiced in this material are for general information only and are not intended to provide specific financial, tax, legal advice, or recommendations for any individual.