Podcast Episode - Suze School: The Secure Act 2.0 and How It Effects Your Money

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On today’s episode, Suze reviews the Secure Act 2.0 and the changes to the age for RMDs, excess contributions and more.

Podcast Transcript:

00:00:33

Suze: January 8, 2023. Welcome everybody to the Women and Money podcast and everybody smart enough to listen. Today is Suze school. But before we get to Suze School, I just want to tell you that at the end of today's podcast, I will be announcing the winners of the Alliant Holiday

00:00:59

Suze: Sweepstakes. Last year, If you were part of the Ultimate Opportunity Savings account, if you are a member of Alliant credit union for the second year in a row, you were automatically entered into the holiday sweepstakes where two of you have won now, $10,000 each. So I will be announcing that shortly. All right, here's what I want to tell you.

00:01:29

Suze: Get out your little Suze notebooks because I am going through all the changes that were enacted in what was called the Secure Act 2.0

00:01:42

Suze: And there were over 100 changes.

00:01:47

Suze: in many things that will affect you. But many of those changes don't take place until 2024, 2025. So therefore I'm only going to go over the changes that affect you this year. Because if I were to go over all of them, your head would explode like mine did. And you don't want that to happen to you. Okay, are you ready to begin?

00:02:15

Suze: So let's start with the simple ones. So the simple ones actually are not part of Secure 2.0. They're every year changes that we have to the income limitations in the contribution levels for retirement accounts. So the simple ones are: That starting this year 2023

00:02:43

Suze: that the annual contribution limit for an IRA. Whether it's a traditional IRA or ROTH IRA has increased to $6500 if you are under 50 and $7500 if you are 50 or older.

00:03:02

Suze: To qualify for the ROTH IRA. Which all of you know is my favorite type of retirement account

00:03:12

Suze: and one that KT just loves to talk about. That's an insider joke, I think if you've been listening to the Women and Money podcast for the past year or two but that's besides the point...

00:03:24

Suze: the modified adjusted gross income limits have changed. So to qualify for the maximum contribution

00:03:34

Suze: of $6500 if you're under 50 or $7500 if you're 50 or older is as follows. If your M. A. G. I. Modified adjusted gross income is under $138,000 and you file as single. You can qualify to put in the max to a ROTH. 00:03:59

Suze: If you are married finally jointly

00:04:02

Suze: You can qualify to put in the max. If your modified adjusted gross income is under $218,000.

00:04:12

Suze: You no longer qualify for a ROTH at all, if you are single and your modified adjusted gross income is 153,000 or over or 228,000 if you are married filing jointly.

00:04:32

Suze: Next, if you are married filing separately you still cannot make over $10,000 a year of M. A. G. I.

00:04:45

Suze: So now let's talk about employer sponsored retirement plans such as a 401k, a 403b or a TSP. And their limits that have been increased.

00:04:59

Suze: If you are under 50,

00:05:01

Suze: the maximum now that you can put in is $22,500. And if you are 50 or older it is $30,000.

00:05:14

Suze: So now let's get into the Secure Act of 2.0 and some really great news. An employer sponsored plans such as the 401k, 403b, T. S. P., is this: do you know how many of those plans when you would contribute into your retirement account? They matched your contribution.

00:05:40

Suze: But even if you had a ROTH 401K, for instance

00:05:45

Suze: the employer's match would go into a pretax 401k.

 00:05:51

Suze: Now it is possible for your employer to put the match into your ROTH 401k, 403b or T. S. P. That is a big deal. However, you have to remember that whatever they put into your ROTH retirement account at work will be included in your gross income and you will pay taxes on it.

00:06:19

Suze: I still think for many of you that's a far better thing to do, especially if you're in a low income tax bracket. But either way you know I love ROTH retirement accounts in all circumstances over traditional ones, so that is what you need to know. Now, next, another thing that I think is really great is that many employers out there

00:06:48

Suze: offer what's called a simple IRA, and that was far easier to do than a 401k. And a simple plan usually was put into effect for smaller employers that have less than 100 workers.

00:07:06

Suze: And with that, this year, for the first time, simple plans can offer a ROTH simple,

00:07:17

Suze: that was never true before. So if you had a simple plan, you had to do a traditional simple plan. Now you can do what? You can do a ROTH, depends on when your company will put that all into place, but it is possible for them to do it.

00:07:35

Suze: The same is true with a SEP IRA. Prior to this year, a SEP IRA could only be pretax. Now, a SEP IRA, can be a ROTH SEP IRA. So I think all of those things are absolutely fabulous. Now, sticking on the theme of retirement accounts

00:08:01

Suze: is required minimum distributions. And truthfully, this is the major change in the Secure Act, 2.0, what I'm about to tell you right now.

00:08:17

Suze: You know, prior to the Secure Act, which was 2020,

00:08:24

Suze: all of us knew that when we turned 70 and a half, that we would have to start taking required minimum distributions. Well, with the passage of the Secure Act, the original one,

00:08:37

Suze: they raised that to 72. Now with the passage of Secure 2.0

00:08:46

Suze: they have raised it for everybody that was born between 1951 and 1959.

00:08:55

Suze: You don't have to start taking required minimum distributions until you are 73.

00:09:02

Suze: If you were born 1960 or later, which as many of you, you don't have to start taking required minimum distributions till you are 75. Now be careful here because if you were born before 1951, you still have to take required minimum distributions at 72. So don't get confused there.

00:09:30

Suze: Now, I want you to listen closely because if you're like me and I will be 72 in June of this year, when do I have to take them? I must take them by April 1 after the year I turned 73.

00:09:50

Suze: So since I turn 73,

00:09:54

Suze: next June, in 2024, I can if I want wait until April 1 of 2025 to take my first required minimum distribution. However,

00:10:15

Suze: if I were to do that,

00:10:18

Suze: then what would happen in the year 2025 is I would have to take one distribution April 1st 2025, and I would have to take another distribution by the end of 2025 as well. So, I am not a proponent

00:10:39

Suze: in any of you postponing taking your required minimum distributions till April 1 after the year that you turn the age where it's required for you to take an RMD.  I will take it right in 2024. Now, obviously you can always take money out prior to your required minimum distributions and also remember

00:11:08

Suze: required minimum distributions do not apply to ROTH IRAs.

00:11:15

Suze: Now again, remember, that's one of the reasons I like ROTH IRAs, but that is just something that you should remember. One other thing that is really great when it comes to required minimum distributions. Is that many of you know that if you missed a required minimum distribution

00:11:36

Suze: that you were assessed of 50%, that's 50% tax penalty on any amount that you should have taken out but you did not

00:11:49

Suze: Effective this year, that penalty is reduced from 50% to 25%. However,

00:12:02

Suze: that penalty will be further reduced to 10% if it's fixed during what they call the correction window. Listen closely everybody. The correction window begins on the date the tax is imposed and ends at the earliest of when the notice of deficiency is mailed to the taxpayer, that's you

00:12:28

Suze: When the tax is assessed by the I. R. S. or the last day of the second tax year after the tax is imposed. Now I get that's complicated,

00:12:42

Suze: but you need to know it, because many of you do have elderly parents or maybe you're listening to this and you are becoming elderly and you forget that once you turn 73 or whatever that you have to start making required minimum distributions.

00:13:00

Suze: So your family needs to know how can you get the 25% penalty reduced to 10%. And the way you get it fixed is if you fix it during the correction window.

00:13:15

Suze: Another thing that affects many of you

00:13:20

Suze: is, for whatever reason, some of you put excess contributions into your retirement accounts, you put too much into a ROTH, whatever it may be. Now, what's happened in 2023 is the elimination of the 10% penalty on the earnings of excess contributions.

00:13:45

Suze: So as long as you withdraw those contributions, those excess contributions and their earnings, October 15 of the year after you made them. So then no penalty, the 10% penalty has been eliminated. However, you still will have to pay tax on them.

00:14:08

Suze: So a few other changes with IRAs as well as your employer retirement plans. You know, a lot of you can become ill in fact terminally ill and in the past, prior to this year you could take money out of your IRA or your employer sponsored plans if you were diagnosed as being terminally ill

00:14:34

Suze: and really expected to die within two years.

00:14:40

Suze: Now that two year time limit has been changed to seven years and the money that you take out as a loan is repayable for up to three years. Just something that you should absolutely know

00:14:58

Suze: Now for those of you who are in a federal disaster area, you can withdraw a lifetime maximum of $22,000 without penalty. Obviously you have to pay taxes on it and the taxes can be spread over three years. You also can repay that loan up to three years, but you have to make that distribution

00:15:26

Suze: within 180 days of that disaster. So just know these things, keep it in the back of your mind because you never know when you may be in that situation given what's been happening with the climate and everything like that.

00:15:45

Suze: Another change is if you are a public safety worker, normally if you are, let's say a fireman, a traffic control person, a policeman, you can retire and take money out of your retirement plan at 50 years of age rather than having to wait till you are 59 like most other people do now. However,

00:16:09

Suze: the Secure 2.0 Act has changed it to include private sector workers as well. So private sector firefighters and state and local corrections officers and one other change is this:

00:16:27

Suze: if you are a plan participant and you separate from service after 25 years or more of service, even if you're not 50 years of age yet, you still can take your money out

00:16:44

Suze: without the 10% penalty. Now obviously you have to pay taxes on it, but you no longer will have that 10% penalty. That is new.

00:16:57

Suze: Those are a few of the changes that I really think affect you. What I find is absolutely fascinating is that they gave us no clarification at all. In how to interpret the 10 year rule created by the original secure act for non eligible beneficiaries on inherited IRAs. Are you kidding me?

00:17:25

Suze: The one rule interpretation that we have all been waiting for,

00:17:31

Suze: that, they don't address on any level and in case you don't know what a non eligible beneficiary is, you need to just know what a eligible beneficiary is. So just very quickly, if you inherit an IRA from somebody

00:17:51

Suze: and you're the owner surviving spouse or maybe you're the owner's child who is less than 18 or you're disabled or chronically ill or any other individual who's not more than 10 years younger than the owner, you're known as an eligible beneficiary. So you aren't dictated by the same rules

00:18:14

Suze: as everybody else who isn't an eligible beneficiary and therefore that would make you a non eligible beneficiary. And for that, which is the majority of us, they did not give any clarification at all.

00:18:30

Suze: What they did clarify, however, is back door ROTH IRAs are still here by all means. So if you make too much money to qualify for a contributory ROTH IRA. You absolutely still can do a back door ROTH IRA. And a backdoor ROTH IRA is simply where you make a contribution,

00:19:00

Suze: let's say 6500 or $7500 to a traditional IRA. But you make it non deductible

00:19:10

Suze: and then you convert to a ROTH IRA because there are no income limitations on a conversion.

00:19:19

Suze: So you can still do that. You would never want to do that, however, if you have other traditional IRAs, if you have a SEP IRA a you would not want to ever do a back door ROTH IRA for more on that, you might want to listen to one of the past podcast. Those are the rules that I truly think affect you

00:19:49

Suze: Now in 2024 many things will also change,

00:19:55

Suze: It will change where you have a 529 and you could put some of it into what? A ROTH IRA for the beneficiary, you can do all kinds of things. But again, we will wait until then to talk about it. All right,

00:20:12

Suze: are we ready to announce the winners

00:20:15

Suze: of

00:20:17

Suze: last year's Alliant Holiday Sweepstakes? Drumroll Robert... (Drum Roll Sound)

00:20:29

Suze: The very first winner is Damara Ross. Congratulations Damara. You are having $10,000 put in to your Ultimate Opportunity Savings account.

00:20:46

Suze: So congratulations. The next winner who will have $10,000 put in to their ultimate opportunity savings account is...(Drum Roll Sound)

00:21:03

Suze: Ana Jimenez.

00:21:05

Suze: Congratulations Ana. So these are two people who participated in the Ultimate Opportunity Savings account.

00:21:18

Suze: And because they did their names were submitted into the sweepstakes and they are now $10,000 richer. Who knows if we're going to do that again this year? Maybe yes, maybe no. But there are many things that you're going to want to stay tuned to

00:21:38

Suze: that we are going to be offering you with the Alliant Ultimate Opportunity accounts that are going to come your way. We have worked on these for a long time and hopefully by March of this year they will be available to you.

00:21:55

Suze: So do not hesitate to open up an Alliant account at My Alliant dot com. That's M Y A L L I A N T dot com. So there you go. Everybody that is your Suze School for today. Is your head spinning?

00:22:18

Suze: Maybe yes, maybe. No. But until next week there's only one thing that I want all of us to remember when it comes to our life and it is this today, wherever we go, we will create a peaceful, joyful and loving world that is the goal. Now you stay safe and secure see you on Thursday. Bye bye.

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