By James W. Mallonee
In 2019, the SECURE ACT regarding IRA’s (Traditional and Roth) were updated to increase the age barrier and allowing catchup for specific qualified plans. The SECURE ACT has once again been updated to 2.0. Below are the highlights of the changes.
Increase in age for required minimum distributions (RMD). Under the SECURE ACT 2.0, the age commencing RMD’s increased from 72 to 73 effective January 1, 2023. That age limitation will increase again to 75 as of January 1, 2033. Thus, taxpayers born between 1951 and 1959 will need to begin their minimum distributions at age 73. Taxpayers born in 1960 or later will need to begin taking the minimum distributions at age 75, unless congress changes the dates again.
Can I continue to make regular annual contributions? Taxpayers aged 50+ in age may make regular annual contributions of up to $22,500 to their Employer-sponsored 401K, 403b or 457b plan along with an additional annual “catch-up” contribution up to $7,500.00. As of January 1, 2025 individuals aged 60 to 63 may make an additional bonus catch up contribution of up to $10,000.00 per year to their employer plans.
IRA owners who use an employer plan and who are over the age of 50 may make regular annual contributions up to $6,500.00 to their IRA account as well as an additional catch-up contribution of up to $1,000.00 per year. This amount will be indexed for inflation beginning in January, 2024.
Effective January 1, 2023, if you fail to take the required minimum distribution, the excise tax on your required minimum distribution is 25% which can be reduced to 10% provided a timely correction is instituted. In order to meet the timely correction, the remaining RMD amount not taken must be distributed before the earlier of (1) the mailing date of a notice of deficiency, (2) the date the 25% excise tax is assessed, or (3) the end of the second taxable year after the tax was imposed.
What if I contribute to much while trying to catchup? The excise tax that typically would be appointed is eliminated in 2024 provided the contributor corrects the amount deposited into the IRA account. This correction is usually in the form of a withdrawal of the amount exceeded.
What if I need to withdraw an amount for an emergency? Effective January 1, 2024, you may withdraw from a tradition IRA account (e.g. 401K, 403B and 457 plan) for a personal or family emergency without causing the 10% early withdrawal penalty. There is no requirement for certification of the emergency; administrators can rely on the taxpayer’s self-certification. The amount withdrawn can be replaced within 3 years as opposed to 60 days.
As you can see there have been some significant changes to your IRA plans. There have also been updates to your ROTH plans. If you have a ROTH plan check with your financial institution or planner to inform you of those changes. Bear in mind that these are some the significant changes to the law regarding employer retirement plans. You should note that these changes are trying to encourage you to save for your retirement years and not be totally dependent on social security.
This article is intended for informational use only and is not for purposes of providing legal advice or association of a lawyer – client relationship
James W. Mallonee
946 Tamiami Trail, #206
Port Charlotte, FL 33953
(941) 206-2223
871 Venetia Bay Blvd., #225
Venice, FL 34285
(941) 207-2223