2023 Retirement Legislation Changes

B&H Team

Happy New Year!

I hope you had a fantastic end to 2022 and are feeling refreshed and readyfor 2023.

Whenever important new legislation is released as it relates to financial planning matters, we like to bring the pertinent details to your attention.

After months of debate, Congress finally passed some major changes toretirement laws at the end of 2022.1

The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 changes are numerous, complex, and will roll out over several years.

So let's focus for now on some changes for 2023:2

1. The age at which required minimum distributions (RMDs) begin increased from age 72 to 73 in 2023. This change impacts folks born between 1951 and 1959.

2. The penalty for missing all or part of an RMD decreased to 25% in 2023. Prior to this update, a missed RMD resulted in a 50% penalty. In addition, if a taxpayer now corrects the past-due RMD and pays taxes on it within two years, the penalty drops from 25% to 10%.3

3. Qualified Charitable Distributions have a few more options. Starting in2023, folks who are aged 70½ or older can gift a one-time amount of $50,000(adjusted for annual inflation) to a charitable remainder unitrust (CRUT),charitable remainder annuity trust (CRAT), or charitable gift annuity (CGA).

4. Roth savings get a boost. Starting in 2023, employers can offer workers the choice to receive vested matching contributions directly to their Roth account, where they’ll grow tax-free.2 Also, Roth contributions to SIMPLE and SEPIRAs are authorized in 2023.5 However, we'll have to wait for the IRS and custodians to work out procedures before folks can take advantage of these new opportunities.

5. More folks can take early distributions from their retirement accounts without penalty. Starting in 2023, victims of disasters and folks who are terminally ill will be able to access their retirement accounts early without incurring a 10% penalty.6 There's plenty of fine print, so let's have a conversation if you think you might be eligible.

6. You can now roll up to $35,000 from a 529 to a Roth IRA in the name of the student beneficiary. This provision takes effect in 2024, but we think is one of the most welcoming updates. To be eligible, the 529 account must have been in existence for at least 15 years. This is a great update for families who end up with excess funds saved in a 529 account, which happens in situations where a student decides not to go to college or spends less for their education than the balance of the 529.

Bottom line: There’s A LOT to unpack in the new laws. Many new rules will roll out in 2024 and 2025.

As we’ve learned with previous new regulations, Congress might enact new laws, but we often have to wait for the IRS and other agencies to catch up before we can fully make use of them.

Stay tuned for more updates as the new rules shake out.

Do you have any questions right now? Feel free to call our office to schedule an appointment.  

Serving Clients in Modesto, CA and the Central Valley

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