SECURE ACT 2.0 Setting Every Community Up for Retirement Enhancement
I'm having a hard time deciding on which of the 92 provisions included in this recently passed legislation to highlight. Whether you are just starting your first job, contemplating retirement, or have already jumped ship, this legislation may change the trajectory of your financial plans. For folks in the latter two categories, it might be of interest that the age at which you MUST begin taking RMD's (Required Minimum Distributions) from your tax deferred retirement accounts had been pushed our further from the recent age of 72 to 73 for individuals born between 1951 and 1959 extending to age 75 for folks born in 1960 or later.
These new rules don't affect folks who turned 70.5 prior to 2020 or people born in 1950 or earlier who must follow the age 72 rule.
Another welcome change is the penalty reduction from 50% to 25% for missed or insufficient RMD distributions. If this error is corrected in a timely fashion the penalty can be reduced to just 10%.
Changing RMD timing may give retirees additional years for their nest eggs to grow, but it may also result in larger RMD's (read larger federal income tax bills) when the time comes to begin distributions. This can be a critical piece in planning your retirement. Does it make sense to convert some of your tax-deferred retirement money now in a current lower tax era which will also reduce the corpus of your tax-deferred account resulting in a lower RMD in the future. The planning question is, "Pay now or Pay later."