Keeping up with tax law changes can be challenging but is critical. In the last days of 2022, the President signed the Consolidated Appropriations Act (CAA) of 2023, which included what is known as the SECURE Act 2.0. It builds on the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act.
It is no secret that many Americans are financially ill-prepared for retirement. We have witnessed a drastic reduction in the number of Americans with pension benefits, forcing each of us to take on the task of saving and investing for our retirement years. According to Fidelity Investment’s Retirement Preparedness Measure, 55% of Gen X and 48% of Baby Boomers score their retirement preparedness as having less than needed to cover their basic expenses – reporting significant action is needed.
The goal of SECURE Act 2.0 is to provide Americans with opportunities to help them become better prepared for retirement. This is reflected in the changes made to retirement savings plans, increasing maximum contribution limits, increasing catch-up contribution limits, and introducing a special catch-up contribution limit for those ages 60 thru 63.
Measures have been implemented for employers establishing new retirement plans. They can help eligible employees save for retirement by automatically enrolling them into the plan with a minimum contribution. This contribution percentage can be increased over the years to a maximum amount. Of course, employees can opt out of auto-enrollment.
For those turning 72 this year, new Required Minimum Distribution (RMD) rules allow them to further defer tapping into tax-deferred retirement accounts. This is beneficial when managing taxable income and strategically converting from tax-deferred accounts to Roth IRAs. In a sense, it is giving them more years to trigger taxes at their discretion.
All things considered, we believe SECURE Act 2.0 creates greater flexibility and increased opportunities. Fundamentally speaking, this will be a crucial year to meet with your Smedley Financial wealth advisor to discuss how you can take advantage of the changes.
For more information regarding SECURE Act 2.0, listen to our webinar at SmedleyFinancial.com or look for new episodes of the Power Up Wealth podcast.
We hope you have a joyful and successful 2023.
Listen to a deep dive into these changes on the Power Up Wealth podcast.
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