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President Biden signed the 2023 Consolidated Appropriations Act (CAA) into law on Dec. 29, 2022. The law contains significant changes to employer-sponsored retirement plans and individual retirement arrangements, referred to in the CAA as the SECURE 2.0 Act of 2022 (SECURE 2.0).

While not all the law’s provisions go into effect this year, the following summary includes notable highlights.

Required Minimum Distributions (RMDs)

Beginning Jan. 1, 2023, the age to start taking RMDs increased to 73. If you turned 72 in 2022 or prior, you should keep taking your distributions as scheduled. However, if you are turning 72 this year, you can delay the initial distribution until 2024 or 2025. It is important to note that the first RMD distribution needs to be taken by April 1 of the year following attainment of the RMD age with subsequent RMD distributions taken by calendar year end.

For example, if you turn 73 in 2024, you must take your first distribution (2024 required distribution) by April 1, 2025 and your 2025 required distribution by Dec. 31, 2025. Note: You can take your 2024 distribution during 2024, so you don’t have to take double payments the following year.

In addition, penalties for missed RMDs have been reduced to 25% of the RMD amount (from 50%) and further reduced to 10% if the individual withdraws the RMD amount and corrects their tax return within a two-year window.

Roth 401(k) accounts and individual retirement accounts (IRAs)

Employers now can amend their retirement plan design to give employees the option to receive matching contributions on an after-tax Roth basis; previously matching was only pre-tax.

In addition, Roth accounts within employer retirement plans will be exempt from RMD requirements in 2024.

Catch-up contributions

Starting in 2025, individuals ages 60 to 63 will be able to make annual catch-up contributions, up to $10,000 (indexed for inflation). If you make over $145,000 in the prior calendar year, all catch-up contributions (age 50 and over) will need to be designated as Roth. If you make $145,000 or less, the Roth catch-up requirement does not apply (i.e., it is still pre-tax).

For IRAs, the current catch-up contribution is $1,000 for ages 50 and over. In 2024, this will be adjusted and indexed for inflation.

529 education savings plans

Effective as of 2024, 529 education savings plans will be enhanced to allow up to $35,000 to be rolled over to a beneficiary’s Roth IRA. These rollovers are subject to Roth IRA annual contribution limits. Note: 529 plan must have been in effect for 15 years.

Additionally, and of note, the 401(k) contribution limit for 2023 has been increased to $22,500 ($7,500 catch-up for age 50 and over), and the IRA contribution limit has been increased to $6,500 (with $1,000 catch-up).

For more information on how the SECURE Act 2.0 changes affect you, connect with our team.

Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Baker Tilly Wealth Management, LLC (BTWM) is a registered investment advisor. BTWM does not provide tax or legal advice. BTWM is not an attorney. Estate planning can involve a complex web of tax rules and regulations. Consider consulting a tax or legal professional about your particular circumstances before implementing any tax or legal strategy. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought.

Baker Tilly Wealth Management, LLC is controlled by Baker Tilly Advisory Group, LP. Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm that provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms ©2024 Baker Tilly Wealth Management, LLC

Timothy Hole
Managing Director
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