Retire Your Worries


Vanessa J. Skinner

Do you dream of the day when you can retire? Or have you already retired and worry if you have saved enough money over the years? If so, you are not alone. According to a report issued by the Federal Reserve, 75% of Americans save for retirement but 60% of them either don’t think their savings are on track or aren’t sure.

Bipartisan federal legislation passed in recent years implemented sweeping changes concerning retirement accounts such as traditional IRA, Roth IRA, 401(k) and 403(b) accounts. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, which took effect in 2020, and its successor, the SECURE 2.0 Act of 2022, include provisions intended to expand your retirement savings and impact how your retirement accounts are distributed at your death. Key highlights are summarized below.

Increasing the Required Minimum Distribution Age

Account holders of certain employer-sponsored retirement plans, traditional IRAs, Simplified Employee Pension (SEP) and SIMPLE IRAs are mandated to take a required minimum distribution (RMD) annually based on the account balance and the account owner’s life expectancy. The SECURE Act increased the age that account holders must begin RMDs from 70 1⁄2 to 72 beginning in 2020. Secure 2.0 has further increased the new required beginning date for RMDs to age 73 starting January 1, 2023 and age 75 beginning January 1, 2033 for individuals who attain age 74 that year. Individuals who are currently taking RMDs will continue to take an annual distribution based on their age. Individuals who are employees and not owners of 5% or more of their company may defer RMDs until retirement, even if that is after age 73 or 75. Increasing the age for the start of RMDs postpones payment of income taxes and provides a longer period of time for tax-deferred growth in retirement accounts.

Roth 401(k) Plans Exempt from RMDs

Roth IRAs are currently exempt from mandatory distributions even if the owner has reached the normal RMD age. Starting in 2024, Roth 401(k) plans will also be exempt from RMDs. With no required distributions, such plans will be permitted to increase in value during the life of the account owner.

Required Minimum Distribution Penalty Reduced

The penalty for failing to take a RMD was 50%. Starting this year, the penalty is reduced to 25%. If the plan participant corrects the failure in a timely manner, the excise tax on the penalty is further reduced to 10%.

Catch-Up Contributions

Individuals who are age 50 and older are permitted to make an additional catch-up contribution. During 2023, the catch-up contribution for retirement plan participants over age 50 is $7,500. Starting in 2025, individuals who are ages 60-63 may contribute the greater of $10,000 or 150% of the catch-up limit for that year.

Increased Exceptions to 10% Tax on
Early Distributions
Generally, if an individual withdraws from a retirement plan prior to age 59 1⁄2, the individual must pay an additional 10% early withdrawal tax unless an exception applies. SECURE 2.0 expands existing exceptions and creates new exceptions for (1) emergency expense withdrawals, (2) those suffering from a terminal illness, (2) domestic abuse victims, (3) those afflicted by federally declared disasters and (4) the purchase of long-term care insurance.

Rolling Over 529 Plans to Roth IRAs

A 529 plan is a tax-advantaged investment vehicle used for college savings. If the 529 plan has existed for 15 years and is no longer needed because the beneficiary has completed his or her education, then up to $35,000 of the plan may be rolled over into a Roth IRA for the benefit of that individual. This can jump start a child’s or grandchild’s retirement savings and avoid 529 plan withdrawal penalties for expenses unrelated to education.

Distribution of Retirement Accounts at Death

The Secure Act requires an inherited retirement account to be distributed by the end of the tenth year following the death of the account owner. There are four groups of eligible designated beneficiaries to which the 10-Year Rule does not apply, and they are able to “stretch” RMDs over their life expectancy, minimizing the income tax consequences to them each year: (1) the account owner’s surviving spouse, (2) disabled or chronically ill persons, including a special needs trust for them, (3) individuals who are not more than 10 years younger than the account owner and (4) minor children of the account owner until they reach the age of 21, at which time the 10-year payout period will apply.

The passage of the SECURE Act and SECURE 2.0 has significantly changed the landscape of retirement benefits planning, enhancing retirement security for millions of Americans.

Vanessa J. Skinner is a shareholder with the firm of Winderweedle, Haines, Ward & Woodman, P.A., where she chairs the firm’s Wills, Trusts & Estates Department. She was recently named one of the Best Lawyers in America in the area of Elder Law for the third consecutive year. She is the host of The Power of Planning Podcast, thepowerofplanning.

This article is featured in the Summer 2023 issue of The Growing Bolder Digital Digest.

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