New retirement rules are now in effect after the passage of the SECURE Act 2.0 in late 2022. Here are some of the major changes and ideas to help you take advantage of them.
• More time before you MUST take money out. You now have until age 73 before you are required to make minimum distributions from qualified retirement accounts. This is an increase of one year from the prior age of 72.
Taking advantage: If you turn age 72 in 2023, you have an extra year to minimize the tax bite on your distributions. By efficiently planning your withdrawal amounts after age 60 and before age 73, you can often reduce the tax on these funds when withdrawn. So review the minimum distribution requirements of your IRAs, 401(k)s and other retirement savings accounts and develop a plan to take advantage of this new rule.
• Bigger tax break for setting up a workplace retirement plan. A tax credit equal to 100 percent of the administrative costs for establishing a workplace retirement plan is available for up to three years for eligible businesses with 50 or fewer employees. Businesses with 51 to 100 employees will still adhere to the original tax break rules, which caps the credit at 50% of administrative costs and with an annual cap of $5,000. There is also a new tax credit based on a business’s matching or profit-sharing contributions, capped at $1,000 per employee.
Taking advantage: This credit could cover all set-up and administrative costs during the first three years of a plan’s existence, as average 401(k) set-up costs range from $1,000 to $2,000, while average annual administrative costs range from $1,000 to $3,000. To keep your annual administrative costs are low as possible, it may be worth shopping around for different plan providers as the fees can vary.
• Higher catch-up limits help you save more. Starting in 2024, the $1,000 catch-up contribution for IRAs will receive an annual cost-of-living adjustment in increments of $100, while the $7,500 catch-up contribution for 401(k)s will increase to at least $10,000. This higher 401(k) catch-up limit will also be indexed for inflation starting in 2025.
Taking advantage: If you are age 50 or over, remember to account for the catch-up contributions attached to your retirement plan currently set at $6,500 for traditional and Roth IRAs and $7,500 for 401(k)/403(b) plans. Toward the end of 2023, find out the annual savings limit of your retirement savings plans for next year, including the catch-up amount. Then make adjustments to your retirement savings plan as soon as possible in 2024 to take advantage of next year’s higher savings limits.
One of my primary objectives is to help you achieve your financial goals through a holistic approach that is tax-efficient in my wealth management and tax resolution practice. For more information, visit www.fredtfoxiii.com.
Fred T. Fox III is a Lawton native who owns his own business.