• (540) 562-0123

  • Roanoke, VA | Lynchburg, VA | Richmond, VA | Bethesda, MD | Charleston, SC

  • January 10, 2023

Secure 2.0 Act Changes to Federal Tax Code

Secure 2.0 Act Changes to Federal Tax Code

Secure 2.0 Act Changes to Federal Tax Code 1024 683 360 Wealth Consulting

It’s a new year, which means new tax code changes. Some of those changes involve the Secure 2.0 Act. Many will appeal to tax payers. There are over 100 provisions in this Act, designed to encourage participation in retirement plans. We’ll focus on some of those most likely to be relevant to you.

401(k)s

Employers can provide incentives for employees to contribute to their retirement accounts as part of the Secure 2.0 Act provisions.

Student loan payments will qualify as employee contributions for employer matches to retirement accounts come 2024. Studies and personal stories argue student loan debt is a barrier to wealth building. By allowing employees to count repayments on higher education costs as substitutes for retirement contribution matches on 401(k)s, younger employees can see the benefits of compound interest earlier with retirement investments.  

One of the Act’s provisions involves auto enrollment in employer 401(k) or 403(b) retirement plans beginning in 2025. Employees can opt out, but if they don’t, plans will start at 3% of pretax earnings, increasing by one percent each year until reaching 10% of an employee’s annual salary. Employees can select to contribute more or less than formula figures. Businesses less than three years old, those with fewer than ten employees, and churches and government agencies are exempt.  

Minimum distribution requirements

The latest Secure 2.0 Act changes, effective January 2023, builds on the 2019 Secure Act. The 2019 legislation upped the required age for minimum distributions from 70 ½ to 72 with certain retirement accounts. Three different bills in the House and the Senate comprise the lates changes. Effective January 1, 2023 the age goes up to 73, then rises to 75 in 2033. Neither of these are retroactive.

529s changes with Secure 2.0 Act

Beginning January 1, 2025, some 529 accounts can be rolled over into a ROTH IRA. No penalty withdrawals are limited to 15-year-old+ accounts and capped at $35,000. Standard IRA contribution limits apply.  

Catch up contributions, emergencies and more

Beginning January 1, 2024, catch up contribution limits will go up for people 60-63 years old. Financial incentives are to be available for plan contributors and part-time worker access to retirement plans will be expanded.

Early emergency retirement account distributions are coming to your future. This includes up to $1000 allowed in withdrawals once during the year without being subject to the typical 10% tax penalty. If you don’t repay what you borrow within a specified time, you’ll have to wait three years to do it again. Abuse cases can be also eligible for penalty free withdrawals.     

Curiously, part of this legislation is a lost and found database of 401(k)s. The Department of Labor will house this. If you can’t keep track of where you’ve already invested in your retirement nest egg, maybe it is time to hire some help. Give us a call or shoot us an email and we’ll get you back on track.

Photo by Fabian Blank on Unsplash