By Sarah Brenner, JD
Director of Retirement Education
Follow Us on X: @theslottreport
Thanksgiving is almost here! This is a time for us to gather together and express our gratitude for all the good things in our lives. When it comes to our retirement accounts, we frequently complain about the negatives, such as the many IRA rules that are way too complicated and confusing.
It has become a Slott Report Thanksgiving tradition to change it up and take a few moments to give thanks for those IRA rules that work well and help us save for our families’ futures. Here are 4 IRA tax breaks for which we give thanks in 2023.
1. Exceptions to the Early Distribution Penalty: Retirement accounts are supposed to be for saving for retirement. That is why there is a 10% early distribution penalty that applies to distributions taken before age 59 ½. However, life doesn’t always go as planned. Congress has recognized that fact. With the recently enacted SECURE 2.0 law, Congress continues to add to the list of exceptions to the penalty so that younger savers have easier access to their retirement funds. New exceptions now exist for natural disasters and terminal illness. Starting next year, there will also be exceptions for domestic abuse and even a limited exception for financial emergencies. For these exceptions, the many retirement account owners who have faced hard times and unexpected bills are grateful.
2. Everything Roth: Since the Roth IRA first arrived on the scene in 1998 and brought with it a whole new way of retirement savings with tax-free distributions of earnings, Roth savings opportunities have grown. Roth employer plan accounts are now common, and millions of retirement savers have done Roth conversions. With SECURE 2.O, Congress has continued the trend of expanding Roth opportunities, and for this we are thankful.
3. Qualified Charitable Distributions (QCDs): Being charitably inclined is a good thing! We give thanks for QCDs which encourage gifts to charity by allowing tax-free transfers of IRA funds to charities. SECURE 2.0 now allows for QCDs to split- interest entities such as charitable gift annuities. Next year, the annual limit for QCDs will increase from $100,000 to $105,000. We are grateful for all the benefits of QCDs. They not only decrease adjusted gross income, but also can satisfy the year’s required minimum distribution (RMD) requirement.
4. Opportunity to Save More in 2024: No one likes inflation, but when it comes to retirement accounts, there is one bright spot. Inflation has led to some increases to the retirement account contribution limits. While inflation is no fun, we are thankful that next year savers can put away a little more for a secure retirement. The IRA contribution limit will increase to $7,000 for those under age 50 and to $8,000 for those who reach age 50 or over in 2024.