In the last days of 2022, Congress passed something called the Consolidated Appropriations Act of 2023, which authorizes roughly a year of federal spending ($1.7 trillion worth), and also included the SECURE Act 2.0, which has a number of provisions I think many will appreciate, or at minimum find interesting. Below is a list of the highlights.
Required Minimum Distribution Updates
· Increased RMD Age: The age for Required Minimum Distributions (RMD’s) from retirement accounts has increased from age 72 to 73 starting in 2023, and age 75 in 2033. This provision has no impact on people who are currently taking RMD’s.
· Reduction in RMD Penalty: Failure to take your RMD has been reduced from 50% to 25% of the RMD amount, or 10% if the retiree catches and corrects the distribution before the next tax return is due, or the IRS sends a demand letter. (In my opinion, this is still very high).
Roth Updates and Additions
· Expanded Roth Contributions: Roth contributions are now allowed for SIMPLE and SEP IRA’s (AMAZING!). Employer contributions and employee deferrals can be designated as Roth.
· RMD’s for Roth 401ks have been eliminated: This will start in 2024.
· 529 Plan Rollovers to Roth IRA’s: Starting in 2024, beneficiaries of 529 plans can rollover up to $35k during their lifetime to a Roth IRA. One caveat is the 529 plan must have been open for more than 15 years. Any contributions made in the most recent five years, and earnings on those contributions, are not eligible for this transfer. (This is very interesting to me).
General Retirement Plan Updates
· Retirement Plan Catch up Updates: The 2023 catch up for those over 50 years old is now $7.5k.
· Retirement Plan Catch up Contributions after 2025: Will be indexed to inflation
· Retirement Savings Lost and Found: The Labor Dept, will create an online database for employees to find their lost retirement accounts. (Yes, this does happen to people)
Other Interesting Provisions
· Student loan payments will be treated as employee elective deferral, and thus can be matched as a retirement plan contribution by their employer (if your employer has a match). This seems to be available in 2024.
· QLAC (Qualified Longevity Annuity Contract) contributions have increased up to 200k.
Two Area’s Left Untouched (Most of us expected some change)
· The federal estate tax exemption was not reduced. It will be $12.9M in 2023 and double that amount for married couples.
· Back-door Roth contributions are still “available”.
As always, please do not hesitate to contact me if you have any questions! Jim