Ken Morris: Uncle Sam finally has some good news for retirement savers
Just before the new year,
The new bill increases the amount you can contribute into retirement programs for 2023. It also tweaked the "catch up" provisions that permit people over the age of 50 to save even more.
The new amounts are
The big change in the bill that continues to make the headlines is that beginning in 2023 the starting age for Required Minimum Distributions has changed from 72 to 73.
Simply stated, you can now delay tapping into your retirement savings until you reach the age of 73. The one-year change may sound insignificant, but it could have huge ramifications for many retirees. That's because the lion's share of dollars in retirement programs is pre-tax.
This means when the account owner makes a withdrawal, income taxes need to be paid to Uncle Sam. For example, if your RMD is
Depending on your tax bracket, you could get a check for
These mandatory withdrawals have the potential to negatively impact your Medicare premiums. Here's how. Most Medicare recipients pay a premium of
A somewhat hidden, yet exciting provision in the bill is the ability to transfer up to
Then, if the funds are used for education, the distributions are also tax-free. Another nice feature is that if you have a child that doesn't use all of their funds, the remainder can be transferred to another family member.
That being said, this provision allows for even more flexibility. The Secure 2.0 Act also states that in order to implement the transfer to a Roth IRA the 529 must be maintained for 15 years. As a financial advisor, I like this. I see it as a motivator to get that college savings account opened as soon as possible after birth. The ability to transfer remainder funds to a Roth IRA simply makes the program look even better as measured over a lifetime.
It's a fact that we are a society where the rules are constantly changing. Sometimes you may benefit from the changes and other times they can be costly. Wherever you may be in life's journey, you need to be financially flexible, adapt to changes, and maintain your awareness year in and year out.
Converting a traditional IRA to a Roth IRA is a taxable event and could result in additional impacts to your personal tax situation, including the taxation of current social security benefit payments. Be sure to consult with a qualified tax advisor before making any decisions regarding their IRA.
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