New tax rules mean changes for retirement accounts
There are many methods for you to increase your retirement savings accounts through the SECURE Act 2.0, which Congress passed in late 2022. Here are a few of the law’s provisions and their implications.
Grow tax-deferred retirement accounts
You have another year to contribute to developing a tax-deferred IRA or 401(k) before beginning to take money out if you turn 72 in 2023 or later. The statutory minimum distribution age was increased from age 72 to age 73, making this retirement benefit now accessible. In 2033, the age will rise again, from 73 to 75.
Review the distribution requirements for your retirement accounts and take advantage of the extra time to assist in making your payouts more tax-efficient. Consider taking more taxable income out of your retirement account to benefit from this reduced rate, for instance, if you need to earn an extra $10,000 to enter the next highest tax bracket. Alternatively, consider contributing money to a Roth IRA tax-efficiently.
The new rule permits employers to automatically move more of your income into their retirement plan because the government wants you to save for retirement. As a result, your employer’s 401(k) plan’s maximum automatic deferral contribution has increased from 10% to 15%.
While increasing retirement savings is good, this automatic participation does not consider your specific financial circumstances. Therefore, be aware that you can contribute to your retirement account without your knowledge and independently decide how much you can afford to set aside for retirement. You can choose not to participate in automatic enrollment, so make any necessary adjustments. Remember that you must also pay your bills and accumulate an emergency fund.
Profit from more significant catch-up limits
The $7,500 catch-up contribution for 401(k)s will rise to at least $10,000 beginning in 2024. Meanwhile, the $1,000 catch-up contribution for IRAs will get an annual cost-of-living adjustment in increments of $100. In addition, starting in 2025, this increased 401(k) catch-up allowance will be indexed for inflation. You may qualify for the additional catch-up payment if you are 50 or older.
Review your retirement savings account’s yearly savings cap, including the catch-up amount if you are 50 or older. Then, change your retirement savings plan as soon as practicable to take advantage of the more significant savings limits. And don’t forget to contact our RRBB accountants and advisors if you have any questions!
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