On December 29, 2022, President Biden signed a $1.7 trillion federal spending bill into law. The bill included bipartisan retirement savings legislation called the SECURE 2.0 Act, an enhanced version of the Setting Every Community Up for Retirement Enhancement (SECURE) Act signed into law in December 2019. It includes sweeping legislation that brings key changes to retirement savings programs, all aimed at making saving for retirement more accessible for Americans.
With more than 90 provisions in SECURE 2.0, the way you save for retirement will undoubtedly change. Let’s take a closer look at the ins and outs of the new legislation as we highlight major retirement provisions of which our clients should be aware.
SECURE 2.0:
1) Raises the required minimum distribution (RMD) age to:
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- 73 in 2023
- 75 in 2033
- Individuals who have already started RMDs will need to continue taking RMDs as scheduled. If you’ll turn 72 in 2023 and have already scheduled your withdrawal, consider updating your withdrawal plan.
2) Upon turning 50 years old, the IRS allows taxpayers to contribute an additional amount from the original contribution limits. Secure 2.0 increases catch-up contribution limits.
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Secure 2.0 did not change the age 50 catch-up limits.
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New catch-up limits:
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401(k) and 403(b) plans – Starting in 2025, catch-up will become the greater of $10,000 or 150% of the catch-up limit for individuals between ages 60-63. Starting in 2026, the catch-up will be indexed by inflation.
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IRAs – Starting in 2024, $1,000 catch-up will be indexed for inflation.
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3) Qualified Charitable Distribution (QCD) limit increases
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Starting in 2024, the $100,000 limit for a QCD will be indexed for inflation.
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Starting in 2023, taxpayers may make a one-time qualified charitable distribution of $50,000 into a charitable trust or annuity.
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4) 529 plan to Roth IRA rollovers
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Lifetime rollover limit of $35,000 established by Secure 2.0.
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529 accounts must have been open for over 15 years.
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Rollovers from 529 plans to Roth IRAs are now tax and penalty-free
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Funds must be moved directly from 529 plan to Roth IRA
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Any contributions and the earnings to the 529 Plan within the last 5 years are ineligible to be moved to Roth IRA
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Subject to IRA contribution limits
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Beneficiary must have compensation income (subject to change)
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Note: 529 plan and Roth IRA must be in the name of the beneficiary in order to move funds.
5) Automatic enrollment in retirement plans
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Requires businesses adopting new 401(k) and 403(b) plans to automatically enroll participants in retirement plans.
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Initial year employee contribution rate must be at least 3%.
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6) Roth 401(k) plans are exempt from required minimum distributions (RMD)
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Would remove mandatory distributions from Roth 401(k) to be treated similar to Roth IRA.
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7) Matching contributions for student loan payments
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Workers can choose to have matching contributions go towards student loan payments.
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Up to employer/plan as to whether to adopt this.
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8) Increases credit for small businesses starting 401(k)
Small businesses with up to 50 employees receive a 100% credit for startup costs (increased from 50% under old rules).
A Shared Mindset for Growth – Get in Touch With Us
We don’t expect you to keep up with new legislation. That’s our job. Our tax advisors are up-to-date on the changes that affect you. That’s why, with LTax by your side, you can feel confident that you’re saving for retirement in the most effective way. There will be additional guidance on the above provisions and LTax will keep you updated.
For more information on how our advisors can help you plan for retirement through leading-edge tax consulting and planning, contact us here or call us at 561.453.1441.
LEGAL OR TAX: The information herein is not legal, such as trust or estate planning, advice, or tax advice. Any such information is provided for illustrative purposes only and must not be relied upon without the benefit of the advice of your lawyer and/or tax professional. Lido specifically disclaims any liability from any reliance on such information. Lido is not a legal service provider or tax professional and does not offer legal or tax advice. Should you desire to obtain tax or legal services or advice, you must enter into your own, independent engagement agreement with a licensed attorney or tax professional.