We want to bring clarity to the confusing world of retirement planning. And the secure act 2.0 is definitely confusing.

This is a list of how the proposed law will affect retirees.

There are provisions about auto-enrolling new employees in 401(k)s and matching student loan payments into the 401(k). But those rule changes don’t really affect retirees. Today I want to focus on how the new law affects retirees.

So let’s start off with 4 things that I deem to be a positive change. And then we will have 2 changes that I think are bad and make retirement planning more difficult.

So Number 1 – IRA Catch-up Contributions Limits Indexed for Inflation.

So right now if you are under the age of 50, you can contribute $6,000 to an IRA or Roth IRA. If you are over the age of 50, you can contribute an additional $1,000. So the catch-up amount for (IRA) contributions right now is $1,000. The SECURE Act 2.0 indexes that catch up amount for inflation starting in 2023. I deem this to be a positive change.

Number 2 – Similarly, 401(k) Catch-up Contributions Limits.

Under current law, employees who have reached age 50 can make extra catch-up contributions to a 401(k) or TSP or similar plan. The limit on catch-up contributions for 2021 was $6,500. The SECURE Act 2.0 keeps the existing catch-up contribution limits for those aged 50 to age 61, but it increases the annual catch-up amount to $10,000 for participants ages 62 through 64, beginning in 2023. This higher limit would also be indexed for inflation. There again, being allowed to save more money in retirement accounts is a positive thing.

Number 3 – Catch-up contributions have to go to Roth 401k.

In a revenue-raising move, the Secure 2.0 requires all catch-up contributions to be designated as Roth contributions. this is great news as this allows you to save more money to Roth. The bad news is they’re forcing you to do this.

Number 4-Allow Roth Matching Contributions.

Plan sponsors would have the option of permitting employees to elect that some or all of their matching contributions to be treated as Roth contributions for 401(k) plans. Employer matching contributions designated as Roth contributions would not be excludable from employees’ gross income. This is a big positive.

Now let’s get to the bad changes.

These next 2 changes make retirement planning more confusing and difficult.

So change Number 5- 10 Year Rule -the first SECURE Act eliminated the so-called “stretch IRA” for most non-spouse designated beneficiaries and replaced that with a 10-year rule, under which all the inherited retirement funds must be withdrawn by the end of the 10th year after death.

So instead of stretching an inherited IRA for 20, 30 maybe 40 years and only having to take small RMD’s each year, this rule forces you to take distributions in the first 10 years, thereby really shortening the amount of time you have tax advantaged growth.

So this rule is not a result of the new Secure Act 2.0.

Instead the IRS has made a surprise announcement recently on how they are interpreting the first Secure Act.

The last negative change is Number 6- RMD Changes

So a few years ago the RMD age was 70.5. The first Secure Act changed the age to 72. That was a confusing transition. With the proposed Secure Act 2.0, the age for RMDs would initially increase to 73 starting on January 1, 2023, then to age 74 on January 1, 2030. It would rise to 75 on January 1, 2033.

It also would waive RMDs for individuals with less than $100,000 in aggregate retirement savings, as well as reduce the penalty for failing to take RMDs to 25% from the current 50%. All of these changes may be better for people as it delays the dates on when you are required to take money out.

But one thing that is not good about the changes is it is now very confusing.

All this confusion may warrant working with a professional to help make sure you get everything done properly.

If you want help with your retirement planning and you want to work with somebody that’s aware of all these changes and how they affect your retirement, please reach out to christycapital.com or give us a call on the number on your screen.

We are always on the lookout for better ways to plan for your retirement.

The information provided is not intended as tax or legal advice. Figures shown are for illustrative purposes only furthermore, the information nor the illustrations provided may not be used to avoid any tax penalties. This content represents the general views of Christy Capital Management and should not be regarded as personalized investment advice Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice. Retirement Benefits Institute, Inc., and a portion of its contents merged with Christy Capital Management Inc. Brandon Christy, former President of Retirement Benefits Institute, is also the current President of Christy Capital Management, Inc, a registered investment adviser….(read more)

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