Woody Derricks

New laws, new opportunities

The 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act altered the nation’s retirement-saving landscape. A follow-up package, SECURE Act 2.0, takes the changes even further, plus has many new additions. In this article, I’ll discuss how you can utilize these new opportunities to strengthen your own financial preparation for retirement.

You’ll have more control over taxes with RMD changes – The SECURE 2.0 Act changed a wide variety of retirement regulations, with many changes impacting Required Minimum Distributions (commonly referred to as “RMDs”). If you’re unfamiliar with this term, RMDs are amounts you must withdraw yearly from retirement accounts based on existing IRS regulations.

RMDs can present problems in retirement because they create taxable income. Often these distributions can push retirees into higher tax brackets, creating larger tax bills. The extra income may also increase your Medicare premiums in the future.

Good news: SECURE 2.0 pushes these dates out further, so you can take RMDs later. This gives you more flexibility and potential control over your taxes. Now, you’ll need to start taking RMDs at age 73 in 2023 and, beginning in 2033, at age 75.

Then, penalties for forgetting an RMD were lowered. Previously, you would pay 50% of the total amount if you missed one. SECURE 2.0 decreased it to a more reasonable 25%. Plus, an additional provision allows you to lower the cost to 10% if the error is corrected in a timely manner.

And more good news for those with a Roth workplace retirement plan: RMDs will no longer be required from those accounts starting in 2024.

You’ll be able to contribute more to retirement accounts – More good news: those approaching retirement can contribute even more on a tax-advantaged basis.

Catch-up contributions are nothing new, but SECURE 2.0 included a special one to allow older workers to boost savings. Starting in 2025, those aged 60 to 63 will enjoy a catch-up contribution much higher than usual. It will be the greater of $10,000 or 150% of the “standard” catchup contribution for 2024. The $10,000 amount will also be adjusted for inflation beginning in 2026.

Finally, IRAs currently have a catch-up contribution of $1,000 for those 50 and older. Starting in 2024, that annual limit will be indexed to inflation, likely increasing each year, allowing millions to save even more.

Other changes to help for emergencies – We’ve all read that many Americans don’t have any emergency savings. SECURE 2.0 provides the ability to take a penalty-free $1,000 emergency distribution from a 401(k) or 403(b) to cover those immediate needs. This provision starts in 2024. There are some limits, however:

• That withdrawal can only be taken once per year.

• The withdrawal won’t be subject to the 10% additional tax that usually applies to early distributions.

• You are expected to repay the amount, but if you don’t, you won’t be allowed to take another emergency distribution for the next three years.

Then, the Act also expands hardship withdrawals for 403(b) plans specifically.

Finally, in cases of domestic abuse, penalty-free withdrawals are also allowed.

Mining the new law for tax planning opportunities – This was a significant law change with many new provisions. Because of this, you should make time for tax planning to see what changes can potentially keep more money in your pocket.

At Partnership Wealth Management, we work with our clients’ CPAs to develop tax strategies.  We can walk through these opportunities and more with you to help you as you plan for your future. 

Key takeaway – The SECURE 2.0 Act can help most of us save more for retirement, which is always good news. But everyone’s financial situation is different. That’s why retirement planning and tax strategies are critical this year so you can make the most of the opportunity. t

Offered for informational purposes only, not as specific advice to any individual. As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing its clients with financial planning and wealth management services to help them work towards their financial goals. Partnership Wealth Management has a long history of working with the LGBT community with services such as financial planning and estate planning strategies. More at www.partnershipwm.com

Author Profile

Woody Derricks, CFP®
Woody Derricks, CFP®
Throughout my nearly 20 years as a Financial Advisor, I have seen some of the best and worst markets in our history. That experience allows me to approach my clients with the knowledge of how the markets fit into their greater financial picture. At Partnership Wealth Management we help everyday people who have accumulated wealth make sense of what they have and work with them to maximize their financial opportunities in a relaxed, comfortable, and professional environment. While we help people from all walks of life, many of our clients are same-sex couples searching for a knowledgeable, LGBT-friendly financial advisor to help them with their unique financial planning needs. I am a CERTIFIED FINANCIAL PLANNER™ professional and have the Accredited Domestic Partnership Advisor(sm) designation. As a Registered Investment Advisor, we are not tied to any company’s investment products allowing us to provide unbiased advice by offering a wide array of investments and other products to our clients. Since 2001, I have been writing articles on financial planning for several regional newspapers and have been a guest speaker on LGBT financial issues for various local and national organizations. Additionally, I have conducted financial planning workshops for large corporations and government agencies. Non-Profit Work I believe that it is important to give back to the community and currently serve as the treasurer for FreeState Justice and as a co-founder/president of Paws for a Cause. I’m a current member of several LBGT, environmental, and local community groups. Personal My wife, Heidi and I enjoy camping, hiking, and traveling with our daughter, Elise, and our dogs, Fenway & Roxy. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.