By Ted Reagle
In December, Congress approved the SECURE Act 2.0 to enhance retirement savings. Here’s how those changes will affect your retirement planning.
Most notably, the age at which individuals must begin taking required minimum distributions (RMDs) from 401(k) or IRA accounts increases to age 73 this year. The age for initial RMDs has been creeping upward, reflecting the longer life expectancy seniors are enjoying. Just four years ago, the age for initial RMDs increased from 70 to 72; in 2033, it will increase to 75.
Furthermore, starting in 2025, the amount of the “catch-up” contribution for individuals ages 60 to 63 who are still working will increase 50 percent, from $7,500 to $11,250.
For this year, though, the maximum employee contribution to a 401(k) plan is $22,500, plus an additional $7,500 for individuals 50 and over. January is a great time to consider increasing your annual percentage contribution to your 401(k) plan to take advantage of the tax-deferred savings and power of compound interest to grow your retirement account over a long period of time.
Also in 2023, the limit on annual contributions to an IRA will increase by $500 to $6,500. The IRA catch-up contribution limit for individuals age 50 and over remains $1,000 in 2023. Hence, if you are over age 50 you may contribute $7,500 to your IRA this year. Starting in 2024, the IRA catch-up contribution will rise annually indexed to inflation.
SECURE 2.0 makes another interesting change related to 529 college savings plans. Individuals have the option to roll over up to $35,000 from a 529 plan (such as CHET) into a Roth IRA in the name of the student beneficiary. In order to take this step, the 529 plan must have been open for at least 15 years.
Find a better savings rate
If you have a significant balance in a savings or IRA account at a bank and are frustrated by the account’s low interest rate, you can set up a brokerage account to take advantage of the higher interest rates being offered on CDs and U.S. Treasuries. Presently, these low-risk investments are earning between 4 and 5 percent interest. Give us a call if you would like more information regarding putting your savings to better work.
Feeling the pinch of higher prices?
Like many families, we’ve been feeling the impact of higher prices on our household budget. To keep our living expenses down, we started grocery shopping at a local discount grocery store and have noticed significant savings compared to the large grocery chains in our area.
If you would like to reduce your living expenses, I encourage you to give a discount grocery store a try. You may be pleasantly surprised by the selection, customer service, and (of course) the extra money you get to keep in your pocket.
ENHANCED RETIREMENT AND COLLEGE SAVINGS
By Ted Reagle