If you are one of the many United States citizens struggling to save for your retirement, the new rules of retirement of the Law SECURE 2.0 They can make it easier to contribute to tax-advantaged plans. According to a 2023 Federal Reserve study, about 28% of adults who have not yet retired do not have savings for retirement. Retirement. Even if you have money saved, the Morningstar Center for Life Studies Retirement and Policies found that about 45% of American households had not saved enough to cover all your expenses in retirement.
This is a problem, especially if you are close to the retirement age. Approved in 2022, the Law SECURE 2.0 is a law that aims to improve access to savings instruments for retirement. This legislation is based on the changes enacted by the Law SECURE original, or Every Community Preparedness for Health Improvement Act Retirement, which was approved in December 2019. Certain parts of the law SECURE 2.0 have already been implemented, but other changes will take effect next January and in subsequent years. Here’s how these retirement changes could affect you.
New Required Minimum Retirement Distribution Rules
Required minimum distributions, or RMD, are mandatory withdrawals that you must occasionally make to your bank accounts. Retirement funded with pre-tax money, such as traditional 401(k)s and traditional IRAs. Those distributions are taxed as ordinary income. The RMD, They exist because IRS You want to make sure that you ultimately pay taxes on the money you invested. The Law SECURE 2.0 brings several changes to required minimum distributions (RMD), among them:
- Higher age for mandatory minimum distribution: the Law SECURE 2.0 delayed the age for the mandatory minimum distribution from 72 to 73 years in 2023. But in 2033, it will increase again to 75 years.
- Lower Penalties for Not Taking Required Minimum Distributions: The Law SECURE 2.0 minimized the penalty for failing to take required minimum distributions from a hefty 50% of the required distribution to 25% in 2023. If you take steps to correct the error in a timely manner, the penalty can be reduced to 10%.
- No RMD from Roth accounts: IRA Roth have been exempt from RMD for a long time, unless they were beads Roth of the workplace. However, starting in 2024, they are no longer required to RMD for any type of account Roth.
- The change delays the deadline for RMD. It may not affect you much if you are going to use your savings to retirement before age 73 (or 75) or if you save mainly for retirement in an account Roth after taxes. But if you want your money to continue growing for as long as possible (for example, if you want to leave your retirement to your heirs).
Financial Incentives for 401(K) Contributions
The Law SECURE 2.0 allows employers to offer small financial incentives, such as gift cards, to encourage employees to save for retirement. Although the provision came into effect in 2023, the IRS has since clarified that the value of these incentives cannot exceed $250. Additionally, incentives can only be offered to employees who are not currently enrolled in the plan of retirement of the employer.
Save for the retirement, It is vital for your financial future. If your employer offers you a benefit extra, it could help you get some extra money. But don’t delay saving if your company doesn’t offer incentives. Additionally, any incentive you receive is considered taxable income, so keep that in mind when you file your 2024 tax return next year.