2023: What’s Changing?
Right before Congress was set to hang it up for 2022, the SECURE 2.0 bill passed and was signed into law. With this new legislation (among other changes the IRS made for 2023), there are some new rules to be aware of that will impact many of you in the coming years!
1) Retirement Plan Contribution Limits
The IRS has announced new contribution limits for retirement plans. Here are the new 2023 limits for the various retirement account types:
Elective Deferral 401(k)/403(b)/457/TSP:
Under Age 50 = $22,500
Age 50 & Over = $30,000
*Note: the maximum contribution between employee and employer for defined contribution plans is adjusting to $66,000 (up from $61,000)
Traditional and Roth IRAs:
Under age 50 = $6,500
Age 50 & Over = $7,500
*Note: the income limits for deductible Traditional IRA contributions and direct Roth IRA contributions are increasing as well
2) Required Minimum Distributions (RMDs)
The new legislation passed by congress includes interesting changes to the rules for RMDs. Until now, the age at which you must start taking withdrawals from your retirement account is 72. If you’re in retirement or close to it, be aware of these updates:
Starting in 2023, the RMD age will be pushed back to 73.
If you’re already 72 and taking RMDs, you will continue doing so.
If you turn 72 in 2023, you have an additional year to delay your RMD.
Starting in 2033 the RMD age will be pushed back to 75.
3) Roth 401(k) Updates
Roth IRAs have always been exempt from RMDs. However, some Roth 401(k) plans have been subject to the rule. Going forward, all Roth 401(k) plans will be exempt from RMDs.
Another great change affecting Roth 401(k) plans will be the addition of employer matching Roth 401(k) contributions. Historically, employers that match employees' Roth 401(k) contributions were only able to contribute on a pre-tax basis. However, with this new legislation, employer matching contributions can be Roth as well!
4) 529 College Savings Plan Rollover to Roth IRA
Starting in 2024, a new provision allows 529 account holders to rollover funds to a Roth IRA for the beneficiary of the 529 plan. This allows overfunded 529 plans to be used for the beneficiary’s retirement. Some of the uncertainty surrounding future college expenses will become less of a risk with this new optionality.
There are some important restrictions on these rollovers:
$35,000 lifetime cap on aggregate rollover amounts
Rollovers are subject to the annual contribution limits (currently $6,500)
The rollover MUST be for the beneficiary of the 529, NOT the account owner
The 529 plan has to be open for 15 years for the rollover to be tax and penalty free (a change in beneficiary appears to reset the 15 year clock)
Contributions and earnings in 529 plans within the last 5 years are not eligible
5) New Employer Benefits Directed at Young Savers
Beginning in 2024, employer sponsored retirement plans (such as 401(k)s), will have an emergency savings account. There will be an annual $2,500 contribution limit, and 4 withdrawals per year will be tax and penalty free. Plan rules can dictate that this account will be eligible for the employer match as well.
Also effective in 2024, employers will be able to match employees’ student loan payments with contributions to a retirement plan. This will further incentivize employees to pay off debt.
How can I ensure that I am taking advantage of these changes?
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If you have questions on any of these topics, or would like to talk about how you are invested, schedule a time to chat with us at Redeem Wealth. We’d love to make sure you are set up for success as an investor, and taking the steps that matter most in reaching your goals.
