On December 29, 2022, President Biden signed into law the Consolidated Appropriation Act of 2023. Included in this Act is SECURE Act 2.0 that is primarily aimed at helping boost retirement savings.
Those saving for retirement and retirees can potentially benefit from this new legislation, as well as small business owners.
We have summarized some of the key points below.
Tax provision | Summarized details |
|---|---|
| The change in required minimum distribution (RMD) age from IRAs and qualified employer sponsored retirement plans (QRP) such as 401(k), 403(b), and governmental 457(b). | The RMD age increases to age 73 in 2023 and to age 75 in 2033. If you turn age 72 in 2023, your RMD is not due until 2024. |
| The reduction in excise tax on certain accumulations in QRPs and IRAs. | Beginning in 2023, the excise tax for every dollar of your RMD under-distributed is reduced from 50% to 25%. May be reduced to 10%, if you correct the shortfall during a two-year correction window. |
| Includes a one-time election for an IRA qualified charitable distribution (“QCD”) to split-interest entity and increases the QCD limit. | Beginning 2023, a one-time $50,000 QCD paid directly from your IRA to certain split-interest entities, including charitable remainder annuity trusts, charitable remainder unitrusts, and charitable gift annuity. The $50,000 is part of the $100,000 QCD annual limit. Beginning 2024, the $100,000 QCD annual limit will be indexed for inflation. |
| Clarifies that the repayment of a qualified birth or adoption distribution is now limited to three years. | Requires qualified birth or adoption distributions to be recontributed within three years of the distribution in order to qualify as a rollover contribution. Effective for distributions made after 2022. For prior distributions, the repayment period ends December 31, 2025. |
| Includes new exceptions to the 10% additional tax for early or pre-59 ½ distributions. | Additional distribution exceptions include:
|
| Permits qualified rollovers from 529 plans to a Roth IRA. | Beginning in 2024, 529 designated beneficiaries can make a rollover contribution from their 529 to their Roth IRA if certain conditions are met:
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| Allows 401(k), 403(b), governmental 457(b) and SIMPLE IRAs to “match” student loan payments. | In order for a 401(k), 403(b), governmental 457(b), or SIMPLE IRA to “match” a student loan payment, the matching contributions must be:
|
| Additional increase in catch-up contributions in 401(k), 403(b), and governmental 457(b) and SIMPLE retirement plans for 60–63-year-olds beginning in 2025. | Starting in 2025, if you are aged between 60-63 you can contribute the greater of either $10,000 or 50% more than the regular catch-up contributions to 401(k), 403(b), and governmental 457(b)plans. For SIMPLE plans the catch-up contribution for the same age group will be the greater of $5,000 or 50% of the catch-up contribution limit. |
| Increased startup tax credit for small employers. | Increases the 3-year small business startup credit from 50% to 100% of administrative costs up to an annual cap of $5,000.
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The effective dates of the tax provisions mentioned above have not changed as a result of recent IRS guidance (Notice 2023-62) released August 2023.
We hope this information will help you with your retirement planning goals. Please consult with your tax, legal and financial advisors to discuss how these new rules impact your specific situation and what potential actions, if any, you should take.
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Disclosures
This report has been created for informational purposes only and is subject to change. Information has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed.
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