You may have heard that the amount you can put in a 401(k) has been increased for 2023. But many of the headlines bury the big news: Roth IRA rules have changed as well. Clark shares the details you need to know.
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As the tax season approaches, it’s important to know the updated rules regarding individual retirement accounts (IRA). Many changes took place in 2019 and 2020, and it’s crucial for everyone to understand the changes to make the most of their retirement savings. Here are some of the new IRA rules you may have missed.
New Age Limit for Traditional IRA Contributions
Previously, account holders could contribute to a traditional IRA until they reach age 70 1/2. However, as of the beginning of 2020, there is no age limit for traditional IRA contributions. This means that account holders who meet certain criteria can continue to contribute to their traditional IRA indefinitely.
New RMD Age
The required minimum distribution (RMD) age was changed from 70 1/2 to 72, effective from January 1, 2020. If you turn 70 1/2 in 2019, you will still need to take your RMD for 2019 by April 1, 2020. However, if you turn 70 1/2 in 2020 or later, you can wait until you reach age 72 to take your first RMD.
Penalty-Free Withdrawals for Birth or Adoption
In December 2019, the SECURE Act was passed, which allowed higher education expenses and birth or adoption expenses to be considered penalty-free withdrawals from an IRA. Individuals can withdraw up to $5,000 from their IRA without paying the 10% early withdrawal penalty. It’s also important to note that these withdrawals are still subject to income tax.
Elimination of Stretch IRA for Non-Spouse Beneficiaries
Previously, non-spouse beneficiaries of an IRA could stretch their distributions over their lifetime, allowing for extended tax-deferred growth. However, the SECURE Act eliminated the stretch IRA provision for non-spouse beneficiaries. Now, most non-spouse beneficiaries must withdraw the entire IRA balance within 10 years of the account owner’s death.
Qualified Charitable Distributions
Individuals aged 70 1/2 or older may still make qualified charitable distributions (QCD) up to $100,000 from their traditional IRA or Roth IRA. These QCDs can count towards your RMD and reduce your taxable income for the year.
New Deadline for Reversing RMDs
If you took an RMD in 2020 and no longer want or need it, you have until August 31, 2020, to return the distribution to the IRA as a rollover contribution. This rule only applies to RMDs taken in 2020, not previous years.
In conclusion, staying informed about new IRA rules and regulations is crucial for maximizing your retirement savings. The changes to age limits and new withdrawal options can have a significant impact on planning for your future. Make sure to consult with a financial advisor to determine the best course of action for your specific situation.
Lmao, I was doing research on the Irish republican army and this came up!
Can money be moved from a 403b into a Roth IRA? if so, what steps are required?
I loved listening in the past, glad to find you again but your microphone needs to be updated as you sound horrible. Like AM radio has better sound.
Perhaps I am giving the US government too much credit for thinking about the monetary situation of the government, but the government benefits from the traditional 401k process more so than the Roth IRA process. I am lucky that my new employer provides a Roth 403b option, but if we are talking traditional 401k vs Roth IRA, the government likely knows that taxes will increase in the future, so they can capitalize on that whereas the Roth IRA forces the government to leave some money on the table. It’s a shame, but I think that this is a situation in which the US government is at odds with the US citizens. The government is trying to ensure that they can bring in more money in the future, while hamstringing the personal accounts of the American people
Another thing that doesn't make sense is why no Roth Options on Simple IRA or SEP or Keogh plan
Its because in a 401K you can't buy and sell. you can only pick the cheesy investment it offers. In a IRA you can buy low sell high to accumulate wealth. the Government wants to keep the people oppressed and controlled.
If you are self employed and have no employees or have a side hustle you can have a solo 401k and benefit from the 401k Roth contribution limits
Clark, you do know why the government doesn’t allow a larger amount of money to go into your Roth IRA, because they don’t make any money off of you because it has tax free withdrawals and tax free growth.
Clark for Congress!
The financial services industry makes a lot more from 401k plans, than IRAs. Congress is working in their self interests, not ours…
There is also no income limit for a 401K Roth through a company but if you're doing a Roth ira on your own there is an income limit. Another brilliant move by Congress!
We'll all be dead before Congress changes the rules.
They can't do anything right.
So TRUE that it makes absolutely ZERO SENSE that someone working for a typical large employer can put $30K in a roth 401k plus potentially fully contribute to an IRA while an employee whose employer does not offer a 401k is only able to use an IRA (6500/7500)! As someone who used to work for a small employer, I found this SO FRUSTRATING! I just started working for a large employer and guess what I am doing? Our legislators need to equalize the two limits OR we need to de-couple the 401K retirement systems from the employers.