Understanding SECURE Act and SECURE 2.0

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Recent major changes in retirement laws allow seniors to take actions to increase their financial flexibility and comfort in retirement. SECURE Act of 2019 and SECURE 2.0 Act of 2022 offer several benefits for older adults to invest more and invest longer.

As counsel for Cummings Foundation, the owner of the not-for-profit New Horizons at Marlborough retirement community, I stay abreast of such changes and am pleased to share the updates below.

Invest more with new catch-up contribution and age limit rules

Contributions to a retirement account are typically capped ($22,500 for 2023). Catch-up contributions allow individuals aged 50 or older to contribute more to help meet their retirement goals.

Starting in 2023, those aged 50 or older may contribute an additional $7,500 per year for 401(k), 403(b), and 457 plans (up from $6,500) or an additional $3,500 to SIMPLE IRA plans.

Beginning in 2025, the catch-up contribution will be increased to $10,000 for workers aged 60-63. For SIMPLE plans, the limit will be increased to $5,000 for workers aged 50 or older.

Additionally, before 2020, contributions to traditional IRA were prohibited after age 70.5. Now, there is no age limit. Those who are still working can continue to save for retirement and reduce their taxable income by making deductible contributions to a traditional IRA.

Invest longer with new required minimum distribution (RMD) rules

At a certain age, one must start withdrawing a minimum amount from retirement accounts each year. The calculation is based on the amount in the account and the individual's age.

Before 2019, retirees were required to start taking distributions from all employer-sponsored retirement accounts, including ROTH 401(k)s and ROTH 403(b)s, when they reached age 70.5. SECURE Act revised the RMD age to 72, and SECURE 2.0 increased the age to 73 beginning in January 2023. By 2033, the age will increase to 75.

These changes allow for longer tax deferral and more financial flexibility.

For those with ROTH 401(k) or 403(b) accounts, the benefits are even better. Beginning Jan. 1, 2024, account holders are no longer required to make RMDs during their lifetime.

Invest smarter by moving unused money from college savings to ROTH IRAs

The 529 Plan offers tax advantages to individuals who save for education expenses. These include deductions from MA state income taxes when put into the account, and, if the funds are spent on qualifying education expenses, the earnings on the account are tax-free.

Currently, funds left over in a 529 Plan after paying for qualifying education expenses would be subject to income taxes. In addition, the account holder would face a penalty if accessing the funds for other purposes.

Beginning Jan. 1, 2024, owners of a 529 Plan can roll the remaining funds into a ROTH IRA. This rollover will not trigger a penalty or any income taxes. This change will provide greater flexibility and allow individuals to maximize support to their children and grandchildren.

For each of these strategies, additional limitations apply. Speak with a financial advisor to determine how these recent changes to the law might affect your retirement strategy.

Invest smart, spend smart

After investing intelligently and taking advantage of retirement incentives like those described above, the next step is to set up a smart plan for spending in retirement.

Moving into an assisted living community like New Horizons at Marlborough offers many personal and financial benefits to seniors. In addition to eliminating the time and expense of household management, New Horizons offers a sense of community. With an on-site chapel and regular Mass, prayer, and communion services, New Horizons is home to many Catholics looking for a community where they can easily continue their faith-based activities.

A special feature of New Horizons is its strictly not-for-profit nature. This means seniors can ensure their retirement savings are put to the best use without compromising comfort and community. For example, New Horizons currently has a rate lock, guaranteeing no increase to residents' monthly room and board fees for at least six years.

New Horizons is owned by the Woburn-based nonprofit Cummings Foundation, which has granted more than $500 million to greater Boston nonprofits, including grants of at least $100,000 each to Catholic Charities, Catholic Schools Foundation, Lowell Catholic, Nativity Preparatory School, St. Vincent DePaul Society, and numerous other Catholic organizations.

Prospective residents and their families are encouraged to contact New Horizons at 508-460-520 to arrange a time to tour the campus, meet current residents and staff, attend a religious service, and sample a home-cooked meal. More information is available at CountryCommunities.com.