Way back in April we highlighted proposed legislation that could make some changes to the rules of retirement – the SECURE 2.0 Act of 2022.
After handily passing the U.S. House of Representatives in April and passing out of U.S. Senate committees, the bill has patiently waited to be voted on in the U.S. Senate to no avail.
However, legislators have now included most of the provisions of SECURE 2.0 in their year-end 4,155-page catch-all bill that could be voted on as early as this week.
SECURE 2.0 is a sequel to the SECURE Act of 2019 which made significant retirement changes such as increasing the age at which Required Minimum Distributions (RMDs) must begin to age 72 and limiting the life of inherited retirement accounts to 10 years.
Below are some of the retirement provisions that are included in the year-end budget bill as of December 21, 2022. Note that some of these provisions would be enacted in 2023, but others would not take effect until later years:
- Increase the age that Required Minimum Distributions (RMDs) must begin from retirement accounts to age 73 in 2023 and age 75 in 2033.
- Reduce the penalty for missing an RMD from 50% to 25% starting in 2023. If resolved in a timely manner, the penalty would be 10%.
- Starting in 2025, raise the limit on retirement plan catch-up contributions for taxpayers ages 60, 61, 62, or 63 to $10,000 for 401(k) and 403(b) plans and adjust that amount for inflation starting in 2026. There is a smaller increase for SIMPLE IRA plans.
- Require catch-up contributions for most retirement plans to be designated as Roth contributions starting in 2024 for employees making more than $145,000 from the employer plan sponsor.
- Permit retirement plans to offer employees the option to designate employer matching contributions as Roth contributions for most retirement plans starting in 2023.
- Cancel RMD requirements for Roth accounts within employer-sponsored retirement plans starting in 2024.
- Index the $1,000 annual IRA catch up contribution limit for inflation starting in 2024.
- Simplify and increase eligibility for the Saver’s Credit starting in 2027. The Saver’s Credit provides a tax credit for retirement plan contributions to qualifying taxpayers.
- Subject to annual contribution limitations and a $35,000 lifetime maximum, permit rollovers from a 529 plan account to a Roth IRA for the 529 plan beneficiary if specific long-term criteria are met. This rollover option starts in 2024.
- Allow employers to provide employees with a matching retirement plan contribution for making student loan payments starting in 2024.
- Require most newly established 401(k) plans to automatically enroll eligible employees with a minimum 3% contribution, and then automatically increase their contribution by 1% per year until it reaches 10%. Employees may opt out of contributions or the annual increases. This would apply to new 401(k) plans starting in 2024.
- Permit employers to offer “small financial incentives” like low-dollar gift cards for enrolling in an employer retirement plan starting in 2023.
- Create tax-free pension-linked emergency savings accounts for non-highly compensated employees beginning in 2025. Total employee lifetime contributions may not exceed $2,500, but employers may offer matching contributions.
- Expand SEP IRA and SIMPLE IRA retirement plan to include Roth options for contributions in 2023.
- Create a new national online “lost and found” for retirement plans operated by the Department of Labor within 2 years.
- Permit a one-time $50,000 Qualified Charitable Distribution to a charitable remainder trust or similar split-interest entity starting in 2023.
- Allow penalty-free withdrawals from retirement accounts for victims of domestic abuse up to the lesser of $10,000 or 50% of their account value starting in 2024.
- Allow penalty-free withdrawals from retirement accounts for terminally ill taxpayers starting in 2023.
- Expands the age-50 penalty-free withdrawal provision from employer sponsored retirement plans for front line workers to age 50 or 25 years of service starting in 2023.
- Create a once-per-year penalty-free emergency personal expense retirement plan distribution of up to $1,000 per year that can be repaid in the future starting in 2024.
There are literally hundreds of other provisions included in SECURE 2.0 section of this giant bill, and we will be paying close attention as regulations are released to implement these numerous changes. We will continue to update your financial plan as needed to potentially reduce your tax burden.
Source: Text of H.R. 2617 Senate amendment in the nature of a substitute
Quote of the week:
Luke 2:10-12: “I bring you good news that will cause great joy for all the people. Today in the town of David a Savior has been born to you; he is the Messiah, the Lord. This will be a sign to you: You will find a baby wrapped in cloths and lying in a manger.”