All right. Welcome back, everyone.
It was a busy December this year as the Secure Act 2.0 was passed.
The government has made it clear do not rely on Social Security.
The Secure Act makes a lot of changes to retirement plan.
And essentially the goal is to incentivize Americans
to save more in their retirement account so they aren't hung out to dry
when they're ready to retire.
So I want to run through a lot of quick changes.
I'm not going to talk about the specifics of some of these plans
because I've got other videos if you're more interested in how they work.
So let's go through it.
The first change is the automatic enrollment for 401k plans.
This means that employers will automatically enroll
employees in their 41k plans if they have them.
This is different from before because employees had to opt into the plan.
Now they will have to intentionally opt out.
The automatic enrollment amount is 3% of their salary.
There's a maximum initial enrollment of 10%,
and this will increase each year automatically by 1%.
But it's capped at 15%.
So this is obviously forcing employees
to save more for retirement unless they intentionally opt out.
Of course, current 401k plans are grandfathered in
and do not fall under this new automatic enrollment.
There is an exception for small businesses, so
if you have ten or less employer choices, this automatic enrollment
does not apply to your plan and this starts for plan years.
So retirement plan years that begin after December 31st, 2024.
We've got a couple of years before this goes into effect.
The next important change and this is a big one.
This can be important if you want to set up a retirement plan for your employees.
This is the credit for small employer pension plans.
So it's a start up credit.
Now, this has been around, but it has been modified previously.
If you started a plan, you got a credit for 50% of your costs
for starting up that or a1k plan with a cap of $5,000.
Now it's for 100% of your costs, up to $5,000.
So this potentially could actually cover almost all of your costs of setting up
that plan.
This applies to employers with up to 50 employees.
So this is for small employers.
Additionally, they've added an another credit related to this new plan,
and that is a credit of up to $1,000 per employee
for amounts that the employer contributes to the plan on their behalf.
And that is 100% for the first year.
100% of those amounts contributed up to a thousand per employee.
The percentage of the credit is 100% for year one and two
for those amounts that the employer contributes on behalf of the employer.
And then it starts to phase down so that in year three it's 75%.
In year four, it's 50%.
And year five, it's 25%.
And then there's no longer a credit after that.
Again, that is for employers with 50 or less employees.
And that additional thousand dollars credit that you can get starts
to phase out between 51 employees and 100 employees.
And then it would be gone.
This credit is actually available for plans starting now in 2023.
This only you can start do immediately to start providing incentives
for employees to save and be subsidized to contribute to their plans.
The next change relates to simple IRAs and SEP IRAs.
And if you want to know the difference, again,
reference the other videos where I'll talk about the specifics
of each of those plans.
But generally, this is for smaller employers,
and they're very similar to 401 KS, but they have different
limits than a41k, and they're generally easier to set up.
And the changes previously you had to have these set up
as a traditional type IRA, which means that
when you make contributions to it, it's tax deductible at that time.
And then when you take the money out of the retirement plan, then it's taxable on.
You can now do these as a Roth contribution, which is the opposite.
That means when you contribute to the plan, it's still taxable.
So it's not a deduction, but later when you withdraw
those funds in retirement, it is no longer taxable.
And this can actually be a great strategy now that we're heading
into potentially a recession or some think we're already in a recession,
because if you have lower income, it may be better to sock away
money that's being taxed now at a lower rate and then take it out
tax free later when maybe you're at a higher rate.
The other consideration is if you're younger, sometimes
a Roth retirement accounts can be a better alternative
because you have money that is growing in there tax free.
That won't be taxed for a longer period versus
a traditional when it's growing for a longer period.
Well, it's going to grow more, but it's going to be taxed at the end.
Okay. So that's another reason.
If you're younger, Roth retirement accounts can make sense.
This change is actually effective for next year.
So plans that start after December 31st, 2023,
the next change is actually related to the savers match.
And this one a lot of people don't know about.
But this can be a really great credit
for people that are just starting out a new job.
So maybe they've just graduated college.
And so there they worked a partial year because they graduated in May,
maybe they started in August, lately have four or five months of earnings,
so they've earned less.
So for the year, their taxable income is low.
But if they were contributing
to a retirement account, you can actually get a credit.
So it's 50% of your contributions up to $2,000.
And this is for contributions to an IRA or other retirement plan.
So this can really help subsidize the change is that previously
you would claim this credit as a refund on your taxes at the end of the year.
Now, it's actually has to be a contribution to the plan.
So again, the government is saying you need to save more.
So they're changing the credit from being a refund that you could do whatever
you wanted with to being a contribution to the retirement plan.
Now, like I said, this is for lower income individuals, so it starts to phase out.
In other words, the dollar amount that you receive as a credit phases out
for single filers, 20,500
through 35,500.
And above that, you're not getting a credit for married filing joint.
It phases out between 41,000 up to 71,000.
And beyond that, you're not getting a credit.
So again, this is for lower income or if you have a partial year of income,
then this can be a great way to subsidize your retirement.
The change in this credit is not effective until December 31st, 2026.
Okay, we're almost there through the changes
that are really important from the Secure Act to point out.
The next one is the change in the required minimum distribution.
So this means when you reach a certain age,
currently 72, you are required to start
withdrawing funds out of a retirement account.
The purpose of this is because the IRS is saying
that they don't want you to defer the taxes on that forever.
There's a minimum age 59 and a half, and then there's a maximum age
where you start getting penalized if you don't take a minimum amount.
And the changes that it's going to increase from 72 to age 73 this year,
January 1st, 2023, and then it will increase again
to 75 in the year 2033.
The last change relates to catch up contributions for those 50 and older.
So currently those that are above 50 can contribute an additional $1,000
to the retirement plans, and this amount will now
be indexed from inflation starting after 2025.
Lost the catch up contribution for those 60 to 63.
Specifically, those people are allowed to contribute
up to $10,000 potentially instead of 1000.
So that's a pretty big different the additional $10,000
catch up contribution for those aged 60 to 63
will begin after December 31st, 2024.
Okay, guys, I know I ran through that quickly
and there are a lot of changes there.
There are actually a lot more, but these are the most important ones
that I think will affect most taxpayer payers.
So hopefully you found something useful. I'll see you in the next video.