Your own decisions and actions often determine your financial strategies. But external events can also affect your choices. And this may be the case with the recent passage of the SECURE 2.0 Act.
This law covers many areas. But here are some changes that might be of interest to you, depending on your situation:
If you are retired…
Higher age for RMDs: The age at which you must take withdrawals, known as required minimum distributions, or RMDs, from your traditional IRA and 401(k) has increased from age 72 to age 73, effective this year. (If you turned 72 in 2022 but haven’t yet taken your first RMD, you’ll have to do so this year.) And in 2033, the RMD age will rise again, to age 75. You don’t have to wait until these ages before taking withdrawals, but the new age limits may affect your withdrawal decisions.
Lower penalties for missed RMDs: If you don’t take at least the RMD for a given year, you could face tax penalties. Previously, this penalty was 50% of the amount you were supposed to have taken, but it has now been reduced to 25%.
New options for qualified charitable distributions: If you are age 70 1/2 or older, you can make a one-time qualified charitable distribution (QCD) of up to $50,000 to entities that were previously ineligible for such QCDs, including remainder annuity trusts from charity, charity the rest of unitrusts and charitable giving annuities that meet certain criteria. Because QCDs are typically excluded from your taxable income and could satisfy some or all of your required RMDs, which are otherwise taxable, these expanded opportunities can be tax-beneficial. Consult your tax advisor to determine if and how QCDs make sense for your situation.
If you are still working…
Roth Contributions to Retirement Plans: Starting this year, if you participate in a 401(k) or similar plan, you can accept employer contributions and other contributions on a Roth basis. Although these contributions will count as taxable income, they can ultimately be withdrawn, along with the income they generate, tax-free, provided you meet certain conditions.
If you are an entrepreneur…
Increased tax credit for starting a retirement plan: If you have 50 or fewer employees, you can now claim a start-up credit that covers 100%, up from 50%, of the administrative costs of opening a 401 plan (k ), up to $5,000 for each of the first three years of the plan.
Employer Contribution Credit: You may now be able to get a tax credit based on employee matching or profit-sharing contributions. This credit is capped at $1,000 per employee and is phased out over five years.
Military Spouse Tax Credit: If you have 100 or fewer employees who earn at least $5,000 a year, you can get a tax credit of up to $500 over three years if you make military spouses eligible for a retirement plan, such as a 401(k) or SEP IRA. You can take the credit for the year the military spouse enlists, plus the following two taxable years.
These are not the only provisions of the SECURE 2.0 Act that may be relevant to you, and some parts of the new law will come into effect in the future. You may want to contact your financial and tax advisors to see how this legislation may affect you and how you might be able to take advantage of it.
Jennifer Barrett (AAMS) is a local financial advisor at Edward Jones.
225-612-0413 | jennifer.barrett@edwardjones.com
Edward Jones. SIPC member.
Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate planning attorney or qualified tax advisor regarding your situation.
This article was written by Edward Jones for your local Edward Jones Financial Advisor.
