Just before year end, the US House of Representatives passed the Consolidated Appropriations Act of 2023, an omnibus spending bill authorizing roughly $1.7 trillion in new Federal spending. Included was the much anticipated and long-awaited retirement bill known as SECURE Act 2.0. We’ve distilled below a list of the key provisions that could affect your retirement planning.
Increased Required Minimum Distribution (RMDs) age: The RMD age, which is currently set to age 72, has been increased to 73 for years between 2023 to 2032 and thereafter increases to age 75.
IRA catch up contribution indexed: Individuals who are age +50 can make an additional catch-up contribution of $1,000, but this amount has never changed since it was introduced 15 years ago. This catch-up contribution will now be indexed for inflation by $100 increments starting in 2024.
Rollovers from 529 plans to Roth IRAs: Starting in 2024, unused funds inside 529 plan funds can now be rolled over to Roth IRAs for the beneficiary. The lifetime limit is $35,000 per beneficiary and the 529 plan must be open for more than 15 years. While the dollar amount of the transfer counts toward the annual contribution limit, it appears it will not be subject to the Roth income limitations.
Supercharged plan catch up contributions: Starting in 2025, individuals who are ages 60, 61, 62, and 63 will be eligible to make larger catch-up contributions to their retirement plans of the greater of $10,000 or 150% of the regular catch-up contribution (indexed for inflation). For those with SIMPLE IRAs, it will be the greater of $5,000 or 150% of the regular catch-up contribution (indexed for inflation).
More Roth Options: SEP and SIMPLE plans can allow Roth contributions beginning in 2023. Further, all retirement plan catch-up contributions (excluding IRAs) for age +50 for higher income employees must be Roth contributions, starting in 2024. Finally, beginning immediately, plans can allow employer matching contributions to be made on a Roth basis.
Surviving Spouse Beneficiaries: The surviving spouse who inherits retirement accounts now have the option of electing to keep the account in the name/age of the original contributor. This will be useful for those whose deceased spouse was younger allowing them to delay RMDs longer and take RMDs at lower lifetime annualized amounts.
New exceptions to the 10% early distribution penalty: Those looking to take retirement distributions prior to age 59.5 can avoid the 10% early distribution penalty with a few new exceptions. Among these now include disaster relief (limited to $22,000), domestic abuse (limited to $10,000), terminal illness (lifespan expected to end within 7 years), emergency need (limited to $1,000 every 3 years), or qualified long-term care distributions (limited to $2,500).
Creation of Emergency Savings Accounts: Employers can now allow a saving account feature to be linked to employee retirement accounts (limited to $2,500) and employees could take distributions without incurring the early 10% penalty.
Expanded ABLE Accounts: Effective in 2026, individuals who are disabled prior to age 46 can now have ABLE accounts set up in their name (previously it was only age 26 or younger).
Penalty for missed RMDs reduced: The 50% penalty for missed RMDs is reduced to 25%. If the missed RMDs are corrected in a timely manner, the penalty is further reduced to 10%.
Expanded Qualified Charitable Donation (QCD): The annual QCD limit of $100,000 will now be indexed for inflation beginning in 2024. Also, a one-time, $50,000 qualified charitable distribution (QCD) can be made to a charitable gift annuity (CGA), charitable remainder unitrust (CRUT), or a charitable remainder annuity trust (CRAT).
Repayment of qualified birth or adoption distributions: The SECURE Act included a provision that allows individuals to receive penalty-free distributions from their retirement account in the case of birth or adoption. There was no time limit on repaying these distributions. There will now be a three-year time limit.
Also interesting is what is NOT included in the bill, namely items discussed in the past:
Disclaimer: Information provided is for educational purposes only. HBWM does not provide tax, legal, compliance, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions. Further, HBWM makes no warranties with regard to such information, or a result obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.