Breaking the Code: Secure Act 2.0
By: Rachel Speigle Dunnigan, CPA
In the last week of 2022, President Biden signed the Consolidated Appropriations Act into law. Popularly known as “Secure Act 2.0”, this law set-up a major overhaul of retirement-related tax provisions, building on the Secure Act from 2019.
Increased the Catch-Up Contribution Limit
Employees over age 50 can currently make additional catch-up contributions to retirement plans in excess of the usual contribution limits. For 2023, this catch-up limit for 401(k) and 403(b) plans is $7,500. Beginning in 2025, employees aged 60-63 will have a catch-up limit of $10,000. Catch-up contributions for 401(k) plans, 403(b) plans, and IRAs will now be indexed to inflation.
Required Minimum Distributions (RMDs) Delayed
The Secure Act of 2019 delayed RMDs to begin at age 72. The new law further increases the RMD age to 73 beginning in 2023 and to 75 beginning in 2033. This means that anyone who turns 72 in 2023 will not need to start RMDs until 2024. Please note that this does not apply to individuals who have already reached their RMD age.
Increased Qualified Charitable Distribution (QCD) Limit
Currently, taxpayers are allowed to exclude $100,000 of taxable income from a RMD per year if contributed directly to a Qualified Charity. This limit will be indexed to inflation beginning in 2024. Additionally, the Secure Act 2.0 allows for a one-time $50,000 QCD to a charitable trust or gift annuity. Gifts to donor-advised funds and private foundations are still excluded.
529 Plan Rollovers
Beginning in 2024, a tax-free rollover of a 529 plan to a Roth IRA will be allowed up to a lifetime limit of $35,000 with restrictions: the 529 plan is required to have been open for at least 15 years. The rollover to the Roth IRA must be made under the beneficiary’s name and is limited to the annual Roth IRA contribution limits (in 2023, $6,500) until the lifetime limit is achieved. Contributions made in the last five years cannot be rolled over.
Automatic Enrollment in Retirement Plans
Effective for years beginning after December 31, 2024, new 401(k) and 403(b) plans are required to automatically enroll employees between 3% - 10% of their salary. Employees are able to opt out of coverage but automatic enrollment significantly increases participation. All current plans are grandfathered and there are exceptions for some small businesses.
If you have any questions about your individual tax situation, please don’t hesitate to reach out. We will keep you informed of any updates as they become available.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.