Passed by Congress in late 2022, the SECURE Act 2.0 offers a variety of ways to save money in tax-advantaged retirement accounts. Understanding and taking advantage of the options can put you in a better place as we move through tax season. Check out the tips below to make sure you have all the information you need to move forwards.
Money Grows on a Tax Deferred Basis
Assuming you will turn 72 in 2023 or later, you’re allowed to keep money in a tax-deferred 401(k) or IRA for another year. This allows the account to grow before you start to remove funds. The reason this is now possible comes down to the change from the minimum distribution age moving from 72 to 72. In addition, the age will move up again to 75 in 2033.
Make sure you look at your retirement account distribution needs and take this time to make sure your distributions are as tax efficient as possible. For example, maybe you need to make $10,000 before you hit the next highest tax bracket. You might choose to pull additional income into your retirement accounts for the lower rate. Another option would be to convert funds into a Roth IRA with the extra time you have available.
Understand the Auto Enrollment Process
You want to save for retirement and the government feels the same way. The new law lets businesses transfer a larger amount of their paychecks into a retirement plan. It’s done automatically so you never have to think about it. There’s another tidbit to be aware of here. You can now automatically defer up to 15% of the amount from your employer’s 401(k) plan. It used to be capped at 10%.
Saving additional money for retirement is a good idea, but remember that automatic participation doesn’t take into account your specific needs. Be aware that you may automatically contribute and should determine for yourself how much you can afford to place into a retirement fund. Check things out and make needed adjustments, including opting out of automatic distribution if needed.
Higher Catch-Up Limits Are Available
Starting in 2024, the $1,000 catch-up for IRA will have a cost-of-living adjustment in amounts of $100. The $7,500 catch-up for 401(k)s will also increase to $10,000 or higher. This larger limit will be indexed for inflation in 2025. This additional contribution is available as long as you are 50 or older.
Final Thoughts
When you need an accountant to keep up-to-date on new tax laws, there’s no better option than Venture CPAs in Denver, Colorado. We offer business consulting, taxes, and accounting services you can count on. Reach out to us to learn more about how to maximize your tax deductions and make sure your retirement fund is filled.
