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Sarah Ruef-Lindquist, JD, CTFA

Sarah Ruef-Lindquist, JD, CTFA

By Sarah Ruef-Lindquist
For Pen Bay Pilot 

Recently we shared information about the increase in the age for the Required Beginning Date (RBD) for taxpayers to begin taking annual Required Minimum Distributions (RMD’s) from retirement assets like Individual Retirement Accounts (IRA’s). This was a key part of SECURE 2.0 and there are several more provisions that impact taxpayers that are working or retired. To recap, the RBD age for those born in the years including 1951 through 1959, is 73 and for those born in 1960 or later, the age is 75. This is potentially a greater period of time for these assets to grow tax-free until withdrawals must begin and income tax paid on those withdrawals.

For those who fail to take their RMD, there has historically been a penalty of 50% of the amount required to be taken but not distributed. This was a significant incentive for people to be sure to take the full amount of their RMD. SECURE 2.0 reduced the penalty to 25% and for those able to correct the underpayment “in a timely manner” the penalty is 10%.

The law also expanded the opportunity to put funds into retirement accounts on a pre-tax basis.  For taxpayers aged 50 or older, the IRA “catch up” contribution of $1,000 (on top of the contribution limit of $6,500) will be adjusted annually for inflation starting in 2024.

Beginning in 2025, retirement plan participants (401(k) and 403(b) plans, for example) age 60-63 will have a catch-up limit of up to $10,000 or 50% of the regular catch-up limit (currently $7,500) whichever is greater. The 2023 contribution limit for these plans is $22,500.

Currently those participants aged 50 or older have a catch-up limit of $7,500 ($3,500 for SIMPLE IRA’s). In 2023 the SIMPLE Contribution limit is $15,500 and catch-up amount for those 50 and over is $3,500.

All of these provisions offer a greater opportunity for taxpayers to save more with pre-tax earnings toward their retirements. Many more provisions of the SECURE 2.0 Act involve new rules for qualified plans and their administration. If you are an employer with a plan, your plan administrators should be able to update you on the provisions that impact your plan and employees.

Taxpayers should consult with their own tax advisors to understand the impact of these provisions on their particular financial situation.

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