On December 29, 2022, President Biden signed a $1.7 trillion spending bill. This bill needed to be signed by Friday, December 30, 2022 to avoid a government shutdown.  Included in the bill is The Secure Act 2.0 which includes multiple provisions designed to increase retirement savings.  Here’s what you need to know.

  • Required Minimum Distribution Age Increase – Starting in 2023, the age for required minimum distributions (RMDs) will increase from 72 to 73. The RMD age will increase again in 2033 to age 75. Individuals who are currently taking RMDs must continue to take a distribution each year based on their age.
  • Catch-Up Contributions Increase – Individuals who are age 50 and older are permitted to make an additional catch-up contribution. During 2023, the catch-up contribution for retirement plan participants over age 50 is $7,500. However, starting in 2025 individuals who are 60, 61, 62 or 63 will be permitted to make a larger catch-up contribution. The new amount will be the greater of $10,000 or 150% of the catchup limit for that year, indexed for inflation.
  • Roth Catch-Up Contributions – As stated above, individuals aged 50 and above are permitted to make a catch-up contribution to a retirement plan. Starting in 2024, individuals who have incomes over $145,000 will be required to transfer their catch-up contribution to a Roth IRA. This will require them to pay tax on the catch-up contribution, but the future distributions from the Roth account will be tax free.
  • Matching Contributions for Student Loan Payments – Many younger workers have substantial student loans and may not be able to make both their student loan payments and fund a retirement plan. Employers will be permitted to match the student loan payments with a contribution to a Section 40l(k) or 403(b) retirement plan.
  • Roth 401(k) Plans Exempt from RMDs – The Roth IRA is currently exempted from distributions even if the owner has reached the normal RMD age. Starting in 2024, Roth 401(k) plans also will be exempted from RMDs. With no required distributions, Roth IRA and 401(k) plans will be permitted to increase in value during the life of the owner.
  • Required Minimum Distribution Penalty Decrease – The existing penalty for failing to take a required minimum distribution is 50%. Starting in 2023, this penalty will be reduced to 25%. If the plan participant corrects the failure in a timely manner, the excise tax on the penalty is reduced further to 10%.
  • Section 529 Plans Rollover to Roth IRAs Enhanced – A Section 529 plan is frequently used for college savings. If the 529 plan is no longer required because the beneficiary has completed his or her education, then up to $35,000 of that plan may be rolled over into a Roth IRA for the benefit of that individual.
  • Qualified Charitable Distributions Enhanced – The IRA charitable rollover or qualified charitable distribution (QCD) limit of $100,000 for 2023 will be indexed for inflation starting in 2024. Individuals age 70½ or older are permitted to make distributions from their IRA directly to charity and avoid recognition of income. The act expands the QCD by allowing a one-time transfer of up to $50,000 to a charitable remainder annuity trust, a charitable remainder unitrust or an immediate charitable gift annuity.

If you have any questions on this or any other tax or accounting related matter, please feel free to give us a call.  Putting our client’s and friend’s minds at ease regarding matters like these is why we exist.

We wish you a Healthy, Happy, Successful 2023 filled with Love, Laughter & Joy!

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