Dear Tax Constituent:
In the last days of 2022, the President signed the SECURE 2.0 Act into law. Among the more than 90 provisions of the new law, the following are items that we found significantly relevant. The SECURE 2.0 Act:
Increases the age for mandatory Required Minimum Distributions (RMDs) from age 72 to age 73 starting in 2023, and to age 75 starting in 2033;
Increases 401(k) and 403(b) plan catch-up contribution limits;
Requires all catch-up contributions to qualified retirement plans by employees with compensation in excess of $145,000 (indexed) be subject to mandatory Roth tax treatment (after-tax), effective for post-2023 taxable years;
Increases the annual contribution for employee deferral and catch-up contributions to SIMPLE plans by 10% (employers with more than 25 employees would also have to increase their matching contributions) and allows employers to make additional nonelective contributions to SIMPLE plans, effective beginning with the 2024 taxable year;
Allows for the creation of Roth SIMPLE IRAs and Roth SEP IRAs beginning with the 2023 taxable year;
Removes the RMD requirement for employer-sponsored Roth accounts, such as Roth 401(k)s, while the owner is alive. All inherited Roth accounts will continue to be subject to RMD requirements;
Allows sole proprietors (and SMLLCs) who set up solo 401(k) plans after the end of the taxable year to make both deferral and matching contributions by the due date of the owner’s income tax return;
Replaces the IRC §25B Qualified Retirement Savings Contribution Credit with a federal government matching fund program for low and middle-income individuals that contribute to a qualified retirement program, effective beginning with the 2027 taxable year;
Makes it easier for an individual to purchase a qualifying longevity annuity contract (QLAC) with retirement savings by easing current limitations;
Allows penalty-free rollovers from IRC §529 accounts that have been open for more than 15 years to Roth IRAs (subject to annual Roth contribution limits and a $35,000 lifetime cap), effective for distributions made after 2023;
Expands the list of exceptions from the 10% early withdrawal penalty for various types of retirement distributions including:
Qualified long-term care premium distributions,
Domestic abuse
Terminal illness
Presidential declared disasters;
For employers, the SECURE 2.0 Act also:
Mandates automatic enrollment for new 401(k) and 403(b) plans offered by employers (with the option for employees to opt out) for plan years beginning after 2023;
Allows for employers to match employee student loan repayments with a contribution to the employee’s qualified retirement account, effective for post-2023 plan years;
Allows 401(k), 403(b), and 457(b) matching employer contributions to be designated as Roth contributions;
Expands the mandated 401(k) coverage for long-term, part-time workers enacted by the SECURE Act by shortening the three years of service eligibility rule to two years, effective for plan years beginning after 2024. Pre-2021 service is disregarded for vesting and eligibility determinations. This mandate is extended to 403(b) plans as well;
Allows employers to replace SIMPLE retirement accounts with safe harbor 401(k) plans that require mandatory employer contributions, effective for post-2023 plan years;
Allows some new qualifying plans to be adopted for the tax year up to the tax filing deadline; and
Expands the credit for small employer plan start up costs to 100% of costs for employers with up to 50 employees, to a maximum credit of $5,000, and provides an additional credit for qualifying employer contributions starting with 2023 plan years.
Keep in mind that these are general conceptual provisions. The specifics of each item may include limitations, qualifications, and plan amendments to be effective.
If you would like more information on this topic or another tax topic of interest to you, please contact our office.
—McAvoy + Co, CPA