Retirement Planning January 2023

The age at which retirement investors must start taking distributions from individual retirement accounts (IRAs) is increasing. SECURE 2.0 Act has raised the Required Minimum Distribution age from age 72 to 73 beginning in 2023. The age will increase again to 75 by 2033. Importantly, because the new RMD age of seventy-three is effective for anyone turning seventy-two this year, no one turning age 72 this year is required to take an RMD until 2024.

Retirement investors who are 50 and older can contribute $7,500 in 2023 - raised by $1,000. Beginning In 2024, catch-up contributions will adjust annually for inflation in increments of $100 beginning in 2024. In 2025, catch-up contribution maximums rise for retirement investors between the ages of 60 and 62. Catch-up contributions limits are increasing to 50% more than the regular catch-up limit or $10,000, whichever is greater.

There are also changes to Roth IRAs, and 401(k)s. Beginning in 2023, vested employer contributions are eligible for a Roth 401-k. Furthermore, employers’ contributions (both matching and nonelective) can be contributed to employee Roth 401-k. Lastly, RMDs for a Roth 401-k is not required beginning in 2024. Just like traditional Roth IRAs, 401-k Roth account does not require distribution until after the death of the account owner. Roth 401-k investors taking RMDs now will not be required to do so in 2024.

401-k Roth account has restrictions for high-earning individuals. All catch-up contributions to retirement plans will be made on an after-tax basis for individuals who earn $145,000 or more starting in 2024. If a retiree does not need RMD for retirement expenses, they can leave it in their 401-k Roth account to grow tax-deferred.

NEW WAY TO SAVE FOR RETIREMENT. RE-PURPOSE YOUR 529 COLLEGE SAVINGS ACCOUNT FOR RETIREMENT

529 College Savings account can be rolled over to a Roth IRA for the beneficiary of the 529 plan beginning in 2024. College investors in a 529 account no longer must worry about educational funds not being used for qualified educational expenses and incurring taxes on withdrawals. There are restrictions involved:

• The 529 account must be at least 15 years old with the same named beneficiary during that period.
• The amount to be rolled over must have been in the account for at least five years. The new Roth Account must be in the name of the 529 account beneficiary.
• Rollovers are limited to a maximum of $35,000 per beneficiary over their lifetime.
• 529-to-Roth IRA rollovers do not have income limitations like a traditional Roth IRA. However, the beneficiary must have earned income to qualify for a rollover. See your tax accountant for details.
• Rollover contribution is limited to $6,500 in 2023 and is reduced by any other type of IRA contributions in that year.