Good morning, happy Monday & happy Martin Luther King, Jr Day!
“The hardest thing in the world to understand is the income tax”
Albert Einstein
I could not find a good MLK quote for today’s message … his messages were filled with hope and vision … my message today is filled with details about the recently passed SECURE 2.0 Act of 2022. I can hear you say, “oh yea, this is going to be thrilling.” 😉
First of all, a new year means there are new tax brackets. Attached you will find a 2023 reference guide for federal taxes. I reference this guide hundreds of times a year as it is packed with useful information … I hope you find it helpful as well. Full disclosure: I am not a tax professional and none of this is to be interpreted as tax advice.
Also, as you have likely heard, SECURE 2.0 has passed in late December and there are a number of provisions that affect the retirement, investing, saving world. This was a huge 4,000+ page bill with a price tag of roughly $1.7 trillion. Yes, that’s $1,700,000,000,000 … that’s a lot of zeros!!!
To put that into context: A million seconds is 12 days. A billion seconds is 31 years, a trillion seconds is 31,688 years. So, we are talking about really big numbers here!
Now, I have plenty of personal opinions about this bill and its corresponding price tag (likely you do to), but since no one from Washington reached out to me to get my thoughts, I will just present the data as it is.
Obviously (with a price tag like that and 4,000+ pages) this bill covers a lot of topics. Here is a link to the 19-page summary put out by the Senate
Secure 2.0_Section by Section Summary 12-19-22 FINAL.pdf (senate.gov) and it’s also included as an attachment to this email.
Here are some of the highlights I believe will be most pertinent to my client base based on the research I have been able to do thus far:
- Section 107 – starting in 2023 the Required Minimum Distribution (RMD) age goes from 72 to 73 – in 2033 the RMD age is pushed back again to age 75
- Section 108 – IRA catch up contributions (currently $1,000) will be indexed for inflation
- For those over 50 years old, the IRA contributions were $7,000 per year ($6,000 standard + $1,000 catch up) – this makes that $1,000 catch up portion eligible to increase with inflation (example: catch up could be $1,050 next year if a 5% inflation rate is applied … this would bring total IRA contribution limit to $7,050 in this this example)
- Section 109 – greater catch up contributions for those ages 60-63, but this does not begin until 2025
- Section 115 – starting in 2024 there is an emergency retirement account withdraw provision (max of $1,000 per year) that will not be subject to the 10% early withdrawal penalty for those under age 59½
- Section 126 – starting in 2024 funds in a 529 not used for education can be rolled into a Roth IRA under certain conditions ($35,000 max, 529 must be opened at least 15 years)
- Section 303 – creates a database that is supposed to be up & running within 2 years of passage of the bill (circa late 2024, early 2025 – pardon my skepticism) that will help employees & employers find each other for 401(k)s, etc. that can’t be located
- Example: I have a 401(k) with an old job and I can’t find any info about it … I could look into this database to try to find it and collect the benefits due to me in that plan
- Section 326 – effective immediately, no 10% early withdraw penalty (for those under 59½) from retirement plans (ex: IRAs, 401(k)s) in the event of terminal illness
- Section 327 – beginning 2024 the surviving spouse may choose to be treated as deceased for Required Minimum Distribution (RMD) purposes
- This is particularly beneficial for spouses where there is a large age gap, and the younger spouse passes away first
- Section 331 – consider reading this one directly – if you are in a federally declared disaster area (example: hurricane, flood, etc.) there are options for tax advantaged withdrawals from retirement plans – this one is potentially very beneficial to us Floridians in the wake of a hurricane
- Section 601 – allows SIMPLE IRAs and SEP IRAs to accept Roth contributions (employer & employee contributions) – this is effective at the start of this year and is a big deal for those in SIMPLE IRAs and SEP IRAs … I will be reaching out to discuss with those of you this directly affects
- Section 604 – also a big deal – this allows 401(k)s, 403(b)s and 457(b) plans to have the employer match treated as a Roth basis
- This means that the employee would need to pay the tax due on the employer Roth contribution, but this provides an opportunity for significant growth of after-tax retirement savings (something I am generally a big fan of)
- In addition, there are a number of provisions to encourage employers to establish retirement plans (example 401(k) plan) and for employees to participate in such plans, but those are far to extensive for me to dive into here
Does your head hurt yet? 😉 I’m gonna level with you … mine hurts a bit after this project. 😉 I’ve spent hours of reading and hours of webinars studying this Act.
I plan on continuing to research and dive into this bill further and will provide updates if I determine there is additional material that you might find helpful. Please do not hesitate to reach out with any questions. I will do my best to provide the best guidance I can as we navigate the new SECURE 2.0 waters.
It is a great honor to serve you. Hope it’s a great week ahead!