Page 31 - BusinessWest April 15, 2024

Securing the Future
How Financial Planning Has Changed with the Secure Acts
BY PATRICIA M. MATTY, AIF
With the Secure Act 1.0 of 2019 and the updated Secure Act 2.0, which went into effect in 2023, there have been many important changes to the rules and regulations for retirement saving and investing over the past five years.
While the elimination of the ‘stretch IRA’ was a key feature of the first Secure Act, the update provides many enhancements for investors. (The so-called stretch IRA refers to leaving an IRA to a non-spouse beneficiary who could then ‘stretch’ distributions from the IRA over their life- time, thus enhancing the tax-deferral feature of the IRA.)
As financial planners, one of our goals is to help clients
save as much as possible for retirement in the most tax-effi-
cient manner. This usually involves maxing out retirement-
plan contributions (workplace plans like the 401(k) and
403(b), as well as IRAs), as well as deferring the income associated with retirement-plan withdrawals as long as possible.
Some key changes associated with these goals are summarized as follows:
• Starting in 2025, the workplace ‘catch-up’ contribution for individu- als ages 60-63 will increase to $10,000 per year (from $7,500). The
IRA catch-up contribution, which is now set at $1,000, will be indexed
to inflation starting in 2024. For high-income earners, 2026 will see a change that restricts catch-up contributions in workplace plans to a Roth account in after-tax dollars.
• RMDs (required minimum distributions) from retirement accounts start at age 73, thanks to the Secure Act 2.0. Starting in 2033, this will
“As planners, these changes often prompt investigating alternative ways to pass on wealth earlier to heirs, including layering in additional diversification with investments spread between retirement accounts, Roth IRA/401(k) plans, and non- retirement assets.”
increase to age 75. For retirees that have sufficient income and assets in non-retirement accounts, delaying RMDs as long as possible is generally preferred.
• The penalty for not taking your RMD decreased to 25% from 50% (of the RMD amount). This penalty will decrease to 10% if the IRA owner withdraws the RMD and files a corrected tax return in a timely manner. While these penalties are quite rare in our experience, the previ- ous 50% rate was severe and too punitive.
Younger workers and their priorities also received some beneficial changes to the rules and
BusinessWest
<< WEALTH MANAGEMENT >>
APRIL 15, 2024 31
regulations:
• Starting in 2025,
Planning
Continued on page 33
>>