The 2023 Consolidated Appropriations Act (CAA), which President Biden signed on December 29, 2022, contains a multitude of laws and legislative provisions. From a retirement saving perspective, the CAA’s biggest headline is the SECURE 2.0 Act, which picks up where the original Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 left off. As the name suggests, both SECURE Acts aim to help more workers save for retirement.
SECURE 2.0 includes several new enhancements intended to make retirement saving more user-friendly for taxpayers, particularly low and middle-income earners. While SECURE 2.0 includes many welcome changes, most, if not all, of its provisions will have a fairly minimal impact for higher net worth individuals. Collectively, however, SECURE 2.0, the original SECURE Act and related proposed U.S. Treasury guidance and regulations issued in 2022 will affect the role of retirement accounts in financial planning going forward and should be discussed with your advisor. Let’s take a look at the most significant select highlights of SECURE 2.0 that could affect retirement saving and planning.
Raises starting age for required mandatory distributions from retirement accounts: The original SECURE Act increased the age at which savers must take required mandatory distributions (RMDs) from retirement accounts from 70 ½ to 72 years old. SECURE 2.0 further raises that age to 73, starting in 2023, and again to 75 in 2033.
In most cases, this age increase will have a minimal monetary impact, but will provide greater flexibility for tax and financial planning with retirement accounts. This is one change that clients should discuss with their advisor.
Moving forward, here are the general rules for RMD timing:
- Born on or before June 30, 1949: Use age 70 ½ (old rules)
- Born between July 1, 1949, and December 31, 1950: Use age 72 (SECURE Act)
- Born between January 1, 1951, and December 31, 1959: Use age 73 (SECURE Act 2.0)
- Born on or after January 1, 1960: Use age 75 (SECURE Act 2.0)
Increases catch-up limits for IRAs and employer plans: The annual limit for contributions to an IRA is $6,500 for 2023. When individuals reach age 50, they are allowed to contribute an additional $1,000 per year to an IRA. Before SECURE 2.0, this additional catch-up amount was not indexed to inflation. From this year on, the-catch up limit will now increase by increments of $100 based on inflation levels.
The contribution limit for employees participating in employer-sponsored plans, such as a 401(k) or 403(b), is $22,500 for 2023. When individuals reach age 50, they are allowed to contribute an extra $7,500 per year to an employer-sponsored plan. SECURE 2.0 increases this catch-up limit to either the greater of $10,000 or, for individuals aged 60, 61, 62 and 63, 50 percent more than the base catch-up amount in 2025.
Changes to qualified charitable contributions: Individuals will now be able to make a one-time direct qualified charitable contribution of $50,000 to a charitable trust. Also, the annual IRA qualified charitable contribution limit of $100,000 will now be indexed for inflation.
Other miscellaneous changes:
- Allows employers to provide a matching contribution to an employer plan for qualified student loan payments made by the plan participant.
- Permits individuals to roll up to $35,000 from a 529 college savings plan into a Roth IRA.
- Provides a tax credit to encourage small businesses to make military spouses immediately eligible for participation in a retirement plan rather than having to wait for standard vesting schedules to become eligible.
All retirement plans and strategies must be considered within the context of your individual financial goals and circumstances. RKL’s retirement advisors and financial planners can help individuals and businesses interpret the SECURE Act 2.0’s impact on their retirement savings plans. Contact one of our local offices or use the form below to start the conversation.
