On December 29, 2022, the SECURE 2.0 Act was passed in an effort to make retirement planning easier for federal retirees. The Act, however, contains myriad provisions and may be difficult to comb through for someone looking to adapt their retirement plans to take advantage of the more lenient new rules. Staying abreast of legislative changes to retirement requirements and benefits can help ensure there are no surprises when the time comes to begin withdrawing retirement funds. And knowing how to plan around certain requirements during early retirement planning can ensure your nest egg is as large as it needs to be to meet your needs when your retirement day approaches.
Required Minimum Distributions Changes
Many of the SECURE 2.0 Act’s new provisions are around required minimum distributions or withdrawals that must be taken from certain retirement accounts, such as traditional IRAs or Thrift Savings Plans, when the account holder reaches a certain age. These rules stand to make sure retirement accounts are not used as wealth transfer vehicles but are instead used by a retiree during their lifetime.
The act now delays the start age from 72 to 73 starting in 2023, and it will increase again to 75 in 2033. Financial planners caution that this may not be beneficial for tax purposes, though on its face, it seems more lenient. And for individuals close to these minimum ages, more time to plan and strategize could be a benefit. Always conduct a financial planner and your attorney when planning these withdrawals.
In addition, penalties assessed when a retiree fails to take these required minimum distributions have been eased. The penalty was once an excise tax of 50%, but that fee has halved to 25%. If the error is corrected, the penalty is only 10%.
In addition to the required minimum distribution changes, some other provisions have been passed. For one, small businesses are eligible to receive a tax credit for opening up benefits to military spouses. In addition, the Department of Labor and the Department of Treasury will now conduct a study on the impact of inflation on retirement savings pursuant to the Act.
Other provisions include an expansion of automatic enrollment in retirement plans, penalty-fee withdrawals for more classes of emergencies, the exclusion of some service-related disability payments from gross income for first responders, and a database to help people track down lost 401(k) plans or pensions to find contact information for their plan administrators.
Speak with a Colorado Estate Planning Attorney Today
Planning for retirement may seem like jumping through needless hoops. Having a team of professionals on your side can make the process go smoothly and ensure there are no surprises when it comes time to leave the workforce and enjoy your retirement. Braverman Law Group is here to help clients with retirement and estate planning at any stage of the process. To schedule a free, no-obligation consultation with one of our trusted attorneys, give us a call today at (303) 800-1588.