For those planning for their future retirement and/or approaching retirement age, it’s vital to understand changes going into effect in 2023 that could affect the way you approach decisions surrounding your benefits and estate planning. Everybody has unique circumstances that impact their future plans and strategies.
In the approaching year 2024, Americans will reach Peak65; the year when the largest surge of Americans will turn 65 (the traditional age of retirement), according to research from the Alliance for Lifetime Income. Because this surge and several other economic factors portend to affect retirement security for Americans, the federal government has stepped in with the SECURE Act, effective as of 2020. And now SECURE ACT 2.0. While several changes are already in effect, there are more coming that will impact retirement and estate planning for millions of Americans.
We’ll break down what Mississippians should know about how the SECURE Act 2.0 may influence your retirement and estate planning and how our residents can best prepare for what’s to come.
Key Provisions to Retirement Savings Plans Beginning this Year
The SECURE Act 2.0 (Setting Every Community Up for Retirement Enhancement) was signed into law in December 2022 to further establish accessibility and options for retirement savings plans for more Americans. The SECURE Act 2.0 is a comprehensive bipartisan expansion of the original SECURE ACT meant to overhaul the existing system, and while there are over 90 provisions included in the Act, some of the pertinent inclusions that could affect large swaths of the American workforce going forward are:
- The mandatory withdrawal/ required minimum distribution age was increased to 73 years with an ultimately planned increase to age 75 by 2035.
- Government match provides more accessibility for many low and middle-income workers who were previously without retirement benefits
- Increased Catch-Up Contributions for qualified Americans approaching retirement age
- Amendments for Optional Roth Employer Contributions
- Employers can link emergency savings accounts to 401(k) plans become linkable to emergency savings accounts.
Why These Federal Changes are Taking Place
- Across the decades, global life expectancy has increased, as has the age that Americans continue to work before retirement. These and other considerations like inflation, healthcare costs, and tax rates affect how many people approach their retirement savings plans and manage their finances.
- According to a recent report by the AARP, approximately 57 million working Americans across all income levels lack access to employer-provided retirement benefits. The Secure Act 2.0 expands and incentivizes employer options providing broader opportunities for a larger segment of the population to achieve financial security in retirement.
- Lower and middle-income Americans are historically at a higher risk of reducing or fully discontinuing retirement saving because of higher inflation and daily expenses and rising costs of healthcare, property taxes, and other required spending. This is a major benefit of the provisions within the SECURE Act 2.0, which enable more access to qualified savings plans for Americans who currently lack access.
- Financial emergencies have historically put those without a savings safety net at a further disadvantage because they incurred a 10% penalty if they needed to access any benefits before age 59 and a half. Beginning in 2024, this penalty will be lifted for annual withdrawals up to $1,000. This provides an opportunity for people to address their critical needs today without derailing their course toward retirement security.
Additional Changes to Expect in 2023 and Beyond.
The SECURE Act brought hoards of new products and services to the marketplace, allowing for more access for both employers and employees. The pace of product development in this sector is expected to continue and expand. This will ultimately provide more consumer-friendly options for the public to choose from if they jump on the opportunities sooner than later.
Retirement Healthcare Considerations
For Mississippians approaching the eligible age to enroll in Medicare (65), it’s vital to ensure you have a plan in place, assuring your existing coverage doesn’t lapse and there are no penalties incurred. It may be time to look into Medicaid, depending on your age. People are often not aware of or prepared for the average additional expenses healthcare may cost them across their retirement years, even with insurance coverage. It’s important to have a solid plan to ensure you are covered while still maintaining financial security after your working years are over.
Increased IRA Contribution Limits
The IRS has announced an 8% increase in IRA contribution limits. This could be a critical moment to consider adjusting 2023 contributions accordingly to expand savings. It’s important to get clarification on the impacts of these adjusted limits based on your situation, as age and income can affect the way in which you choose to contribute.
Is it Time to Review Your Plan with a Professional?
When it comes to addressing retirement planning changes in your estate plan, It’s recommended to review existing trusts with an estate planning attorney this year so they can advise you of what any changes mean for tax implications for IRAs, and you can make sure that your beneficiary designations and other authorizations currently align with your long-term financial goals. If you want to ensure your estate plan reflects the long-term 2023 federal changes and existing financial climate, contact the team at Lancaster Law Firm today.