The so-called Secure Act 2.0, signed into law December 29, 2022, has changed some of the basics of retirement programs for 2023 and beyond, so do be aware.
The maximums you can contribute have gone up, and this may be the greatest benefit for most people who can afford to contribute.
1. Roths now have a contribution of $6,500, with a $1,000 additional catch-up if you’re over 50. This is $500 more than last year. Same for traditional deductible IRAs.
2. If you have a 401k, 403b, 457, or Roth 401k, you can contribute up to $22,500; over 50 you can add another $7,500 for a total of $30,000, up from $27,000 in 2022.
3. HSAs can now snare $3,850 for individuals and $7,750 from families, with $1,000 catch ups.
Another change was that you can delay required minimum distributions from your 401k, 403b, and traditional IRAs until 73 beginning in 2023, and until 75 beginning in 2033. I’m not sure this is actually a good idea, for several reasons:
• It encourages people to keep on working, when maybe they should consider that it’s time to stop, enjoy life, and make way for somebody younger.
• It staves off urgency to save, because, well, you may as well just work forever.
• Once you start RMDs, the required amount will be larger and could possibly kick you into a higher tax bracket where you’ll pay more taxes on your money in a shorter period of time.
• If you never actually get to spend your money, your heirs will probably be in their highest earning years and so they’ll pay more taxes on the money than a retired person might have.
Still, given the hits to investments in the past year, many people will be glad to let their investments ride a little longer without being forced to sell off in an already low market.
It’s depressing to think that the French are going to the mat to protest increasing the retirement age from 62 to 64, while Americans are faced with being forced, er encouraged, to work longer and longer or face retirement poverty on the relatively puny Social Security. And pensions—what’s that?
There are a number of other changes that depend on the discretion of plan sponsors, not individuals. For example, plan sponsors may allow linking of accounts to an emergency fund, consider student loan payments as deferrals for matching, and make emergency withdrawals available. What they actually do offer remains to be seen, and will depend somewhat (as usual) by pressure from employees or their unions. We’re likely to see that pressure exerted on big employers, but more than 99% of people work for small employers—and many don’t even offer retirement plans. So, one faint cheer for better workers’ rights.