Retirement Planning

Managing an employer-sponsored retirement plan can be a challenging task, especially for small companies. No shortage of regulations must be followed, including those in the Employee Income Retirement Security Act (ERISA) and mandated by the IRS. Matters become more complicated when a large plan status is reached because of increased scrutiny and compliance requirements such as an annual plan audit. In addition, updates such as those outlined in the SECURE Act 2.0 make it easy to see how unintentional mistakes can be easily made. While specific serious errors require the assistance of the IRS to remedy, most errors can be corrected through the Employee Plan Compliance Resolution System (EPCRS).

Last month, The IRS finalized regulations via TD 10001 for the Setting Every Community Up for Retirement (SECURE) Act, which was first enacted in 2019. Many of the proposed rules outlined in 2022 have been passed with minimal changes, including guidelines on required minimum distributions, a new shortened timeline for distributions, and the retention of the 10-year rule. There were also new proposed regulations issued designed to provide detailed guidance on provisions that have yet to be addressed by the agency.

There has been significant concern amongst legislators about the retirement-saving opportunities available to American workers. A recent study by the Pew Charitable Trusts has found that 51% of workers are concerned about running out of money in retirement and 71% wished they had more saved. These findings, common among such studies, reflect the alarming situation many will face in the golden years. It also means taxpayers could be left paying the bill to help those without sufficient means. Over the past few years, Congress has passed several parcels of legislation to make it easier for employees to participate in and benefit from workplace retirement plans including the SECURE Act of 2019 and the SECURE Act 2.0.  

The SECURE Act 2.0, which was enacted in late 2022, builds upon updates made in the 2019 legislation of the same name. Many of the changes are designed to ensure broader access to plans, facilitate automatic enrollment and escalation, increase catch up contribution limits, and modify required minimum distribution (RMD) timing. There were also several employer targeted provisions designed to make it easier and less costly to offer and maintain an employer sponsored retirement plan. Beyond these changes, there were also updates to the rules governing plan distributions. While the focus is on finding ways to expand retirement savings, there were also updates made that allow for penalty free distributions to be taken under certain circumstances. This includes distributions for terminal illnesses, domestic abuse, and for birth/adoption

The SECURE Act 2.0 called for several changes to be made to retirement plans to facilitate broader access and additional retirement saving opportunities. These include the introduction of new distribution types for personal emergencies and victims of domestic abuse, changes to how catch-up contribution amounts are calculated, and changes to Required Minimum Distribution (RMD) requirements. Although there is a 5-year phase in period, the RMD changes went into effect at the start of 2023.This triggered the need for guidance on how regulators will handle non-compliance. The IRS recently issued Notice 2023.-54 which provides guidance on common RMD issues.

Included as part of the Consolidated Appropriations Act of 2023, the legislation builds on many of the reforms made in the SECURE Act of 2019. Since the legislation is comprehensive not all the changes became effective when passed instead relying on a gradual phase-in over a several year period. Starting in 2024 several provisions will become effective including certain required minimum distribution rules (RMDs), the introduction of new 401(k) starter plans, penalty free early distributions, and much more.

Required minimum distributions (RMDs) can be tricky. The IRS mandates that once a person reaches a certain age – currently age 72 – they must make mandatory withdrawals from certain retirement accounts every year. Fail to withdraw the right amount of money, and the individual gets a 50 percent excise tax.

More than half of working Americans have reported feeling behind in meeting retirement saving goals. Concurrently, one-third do not have any retirement savings or account set up at all. To make matters worse, the economic challenges imposed by the COVID pandemic meant that retirement savings were needed to meet routine expenses. Although necessary, it has made retirement planning and savings challenges even more serious and complicated.

During the closing months of the year, many Atlanta individuals look for opportunities to reduce federal income taxes. It is a common practice to review both federal and state tax credits and deductions to identify where opportunities may exist. In fact, 2021 appears to be the last year to leverage many of the now-expired federal COVID-19 tax credit programs. Despite the options, many taxpayers reduce taxes simply by contributing to a tax-deferred retirement plan such as a 401(k), 403(b), 457, or a Thrift Savings Plan. Often increasing the elective deferral amount and accelerating contributions at year-end can go a long way towards tax planning goals. However, it is necessary to be aware of the annual contribution maximums.

Saving for retirement is an important step that every Atlanta individual and family needs should prioritize, at the right time, to ensure there will be enough for the golden years. Unfortunately, when seismic events like an unexpected global pandemic, even the best-laid plans can be cast aside. The unfortunate result of the forced business closures and stay-at-home orders meant that unemployment increased at robust rates. Many were left in unexpected situations where retirement savings was likely not top of mind. Despite these conditions, it appears optimism about meeting retirement savings goals was not impacted.