President Biden signed the omnibus bill into law on December 23rd, 2022. The massive $1.7 trillion spending package funds the government until September, avoiding a government shutdown. 

Included in the many provisions are aid to Ukraine, heightened defense spending, and the SECURE Act 2.0. This builds on the SECURE Act, which was signed into law by President Trump in 2019, and was created to facilitate the funding of retirement. 

The original SECURE Act pushed back the required beginning date for required minimum distributions (RMDs) from 70 ½ to 72, removed the age limit for Traditional IRA contributions and enabled up to $10,000 to be distributed from 529 plans for student loan repayment, amongst its various provisions. The new bill provides even more incentives for employers and employees alike to save for retirement.

A few highlights (bolding the most eye-catching ones for you):

Beginning in 2023:

• The required beginning date for RMDs will pushed back from age 72 to 73. In 2033, the required beginning age will become 75 

• Note that the delay from 72 to 73 applies to those who have not yet reached the required beginning age (anyone turning 72 in 2023 or later)

• Provides a credit for small business owners with 50 or fewer employees of 100% of start-up cost for retirement plan (currently 50%)

• If required minimum distributions (RMDs) are not taken, the penalty has been reduced to 25%. The penalty is further reduced to 10% if the RMD is taken within two years in which the distribution was missed, as long as it’s taken by the end of the second taxable year in which the distribution was missed

• Retirement plans will have the option to allow employer match to be after-tax (Roth)

• Employees can request the Roth match, which would result in the contribution being taxable as income

Beginning in 2024:

• Catch-up contributions for employees age 50 or older with $145,000 of wages must be Roth

• Employer can make a matching contribution for individual paying off student loans

• In-plan Roth 401(k) assets would no longer have RMDs

• Creates a new type of 401(k) called starter 401(k)

• Only contributions are from employee up to IRA limit ($6,500 in 2023)

• Creates a new bucket within 401(k) called pension linked emergency savings (or sidecar) account that can hold up to $2,500, which can be tapped by employee for emergencies 

• Excess 529 funds can be rolled into Roth IRA for the 529 beneficiary

• 529 account must have been in existence for 15 years

• Annual limit is the Roth IRA limit ($6,500 in 2023), capped at $35,000 lifetime

• The amount transferred to Roth cannot exceed the total contributions made into the 529 plan during the most recent 5 years

• Rollovers must be to the beneficiaries Roth account, not to the donor or account owner

Beginning 2025 or later:

• Department of Labor will establish Retirement Savings Lost and Found database, which allows individuals to find old retirement plans 

• 2025 - Any new 401(k) plan will have to have automatic enrollment for new participants with a minimum of 3% and max of 10%, and include an automatic escalation feature

• Plans established prior to 2025 are grandfathered in, and not required to participate

• Workers can opt out

• 2025 - Higher annual catch-up contributions for individuals aged 60-63 of $10,000 within workplace plan

• 2027 - Replaces Saver’s credit with Saver’s match. Eligible individuals (over 18, not a student, not claimed as a dependent, with income phaseouts from $43,500 to $73,000 for married filing jointly) will have 50% of plan contributions deposited by government into plan, subject to a max of $2,000 per individual ($4,000 if married filing jointly), per year.

There is much more to the SECURE Act 2.0. Our hope with this short post is to highlight some of the most relevant changes that impact your bottom line. Reach out with any questions! 

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