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Hello Marion,
Happy January to everyone – We hope you enjoyed your holiday season. With the New Year upon us, we want to bring to your attention a piece of legislation that is broad in scope and may affect some of you. Its focus is on strengthening and improving upon the American retirement system by making changes to existing laws and creating new ones. Part of the legislature is geared towards people already in retirement, and part of it towards people years away from retirement.
The SECURE ACT 2.0 of 2022 was signed into law on December 29, 2022. SECURE is an acronym which stands for “Setting Every Community Up for Retirement.” The law has built upon the changes created in the original Secure Act passed in 2019. The law is complex with more than 90 provisions that offer changes to tax law and retirement plans. Some of the changes are already in effect and some changes won’t be active for years to come. There are several different effective dates and there have been delays, so dates for some of the provisions are a moving target.
Retirement security has been a significant concern for many Americans. This law will hopefully ease up on this concern and make it easier than before to put money aside for the future.
To give you a sense of the breadth of this legislation, there are seven sections:
· Expanding Coverage and Increasing Retirement Savings
· Preservation of Income
· Simplification and Clarification of Retirement Plan Rules
· Technical Amendments
· Administrative Provisions
· Revenue Provisions
· Tax Court Retirement Provisions
Below is a sampling of some of the provisions that may be relevant to you:
Change in begin date for taking RMDs: The Requirement Minimum Distributions starting age has been pushed back. Beginning in 2023, the applicable RMD age, the age one must be to take an RMD, will be 73. In 2033 the RMD start age will be 75. If you've already started your RMDs, you need to continue taking them.
Reduced tax penalty for failing to take your RMD: The penalty for failing to take an RMD has decreased to 25%, down from 50%. If the RMD failure is corrected in a timely manner, the penalty is further reduced to 10%.
Catch-up contribution increases during ages 60-63: Under the new legislation, the limit is increased to $10,000, indexed for inflation, for those who are aged 60, 61, 62, or 63. The limit is $11,250 in 2025.
Catch up contributions for IRAs: After December 31, 2023, catch-up contributions for IRAs will be indexed to inflation.
Catch-up contributions for employees with compensation of $145,000 or more: Previously, catch-up contributions to employer sponsored 401(k) accounts could be made on either a pre-tax or Roth basis. After December 31, 2025, all such catch-up contributions will be subject to Roth treatment with the exception being employees with compensation of $145,000 or less.
Employer matching or non-elective contributions as Roth contributions: Effective after December 31, 2023, plan sponsors can provide the option of employer matching contributions to a 401(k), 403(b), and governmental 457(b) plans on a Roth, or after-tax, basis. Previously, the matching contributions for employee Roth accounts could only be placed on a pre-tax basis.
Requirement for RMD from Roth accounts eliminated: The requirement to take RMDs is now eliminated for designated Roth 401(k) accounts. Previously, these accounts were subjected to the same rules as traditional 401(k)s with regards to RMDs.
Qualified Charitable Distributions: The QCD provision has been expanded to include a one-time $50,000 distribution to charities through charitable remainder unitrusts, charitable remainder annuity trusts, and charitable gift annuities. Additionally, the annual IRA qualified charitable distribution limit of $100,000 will be indexed for inflation.
Distributions from qualified plans under emergency situations: There are several new provisions that permit emergency distributions from qualified plans: federally declared disaster, domestic abuse, certain emergency expenses, pension-linked-emergency- savings accounts, and terminal illness. The specifics for each of these circumstances is different, so it’s important to confirm the details before proceeding.
Employee self-certification allowable for hardship distributions:
This allows employees in need of hardship distributions to self-certify that they’ve had an event that qualifies as an unforeseeable emergency in the event that a hardship or emergency withdrawal is needed.
529 plan Roth rollovers: People have expressed genuine concern for funds left in 529 plans with limited ways to access without paying taxes and penalties. After December 31, 2023, under certain circumstances, the IRS will allow for penalty and tax-free rollovers from 529 plans to Roth IRAs. The funds will need to be in the 529 for more than 15 years and the rollovers are subject to annual contribution limits for Roth IRAs. Beneficiaries of the accounts can rollover up to $35,000 over their lifetime from any 529 plan in their name to a Roth IRA in their name.
Employer matching contribution for student loan payments: Many people have been hindered from saving for retirement because they have substantial student loan debt, can’t afford to contribute to retirement plans, and miss out on matching contributions. Beginning after December 31, 2023, employers of employees who have substantial “qualified student loan payments” may make matching contributions under a 403(b) plan, 401(k) plan, SIMPLE IRA, 457(b) plan or similar plans.
It would be beneficial to consult with a qualified tax professional and your Financial Planner to understand how this law affects your personal circumstances.
As always, we’re here to help.
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