SECURE 2.0 Act in 2023 Budget Bill Changes Retirement Savings
On December 23, President Biden signed a massive $1.7 trillion year-end budget bill that includes bipartisan retirement savings legislation (ie, the SECURE 2.0 Act of 2022).
Mostly modeled after a bill that approved by the House of Representatives in 2021(some provisions come from the Senate EARN Act and another bipartisan bill), the SECURE 2.0 Act of 2022 will reform retirement tax incentives for years to come. This is because the retirement savings package makes numerous changes to existing retirement account rules and some related tax breaks.
Some supporters of the legislation say those changes are designed to encourage more workers to save for retirement through 401(k), 403(b) and IRA plans. Although, others have raised concerns that some provisions of the SECURE 2.0 Act of 2022 primarily benefit high-income individuals.
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SECURE 2.0 Act of 2022: Retirement Plan Rule Changes and Tax Breaks
Here are a few of the more than 100 provisions of the SECURE 2.0 Act of 2022 that could affect your retirement savings in the next year or years. But keep an eye on Kiplinger for more detailed information on these and other aspects of the 2022 version of SECURE 2.0.
Older age for RMD: Under the law as it stands now, you generally must take required minimum distributions (RMDs) from your retirement plan starting at age 72. If approved, SECURE 2.0, 2022 will increase the required minimum age for distribution to 73 years old as of January 1, 2023. That’s a key RMD change you could see in the new yearbut then in ten years the age of RMD will move to 75.
Small Incentives to Contribute to a Retirement Plan: Secure 2.0 2022 will allow your employer to offer small financial incentives (for example, low-cost gift cards) to help boost employee participation in a workplace retirement plan. This provision will be effective for plan years after the law is passed.
Emergency Expense Distributions: Starting in 2024, under the SECURE 2.0 Act of 2022, you will be allowed to take an “emergency” early distribution from your retirement account to cover unforeseen or immediate financial needs. That emergency distribution of up to $1,000 can only be taken once during the year, but will not be subject to the usual 10 percent additional tax that applies to early distributions. But: If you choose not to pay the distribution within a certain time, you will not be able to receive other emergency distributions for three years.
Other hardship withdrawals are provided for in the proposed legislation, including for 403(b) plans. (Currently, the distribution rules for 403(b) and 401(k) plans are different, so SECURE 2.0, 2022, would conform to those rules.) Also, under the law, penalty-free withdrawals of small amounts of money from retirement plans in cases involving domestic abuse will be allowed.
Automatic Registration in Retirement Plans: Beginning in 2025, the SECURE 2.0 Act of 2022 would expand automatic enrollment in retirement plans. The reason for this is that automatic enrollment in 401(k) plans has been shown to increase participation. With some exceptions for small businesses, the bill requires 401(k) and 403(b) plans to automatically enroll eligible participants, who can then opt out if they choose.
Upper limit of recovery contribution: At this time, if you’re age 50 or older, you can make additional contributions to your retirement plan up to certain limits. SECURE 2.0, 2022, increases those limits, beginning in 2025, to the greater of $10,000 or 50 percent more than the regular recovery amount if you’re 60, 61, 62, or 63. After 2025, those amounts will be indexed for inflation.
Saver Party: As of 2027, the SECURE 2.0 Act of 2022 replace the non-refundable Savings Credit for certain IRA and retirement plan contributions with a federal matching contribution that is deposited into your IRA or retirement plan. The match will be 50% of contributions to the IRA or retirement plan up to $2,000 per person. However, some gradual deposit and withdrawal limits will apply.
Employer Matching Funds for Student Loan Payments: Under the SECURE 2.0 Act of 2022, your employer can make a matching contribution to your retirement plan account based on your student loan payment amount. This is designed to address the fact that high student loan debt can prevent people from saving for retirement. This will come into effect in 2024.
Lost and Found Retirement Savings: The SECURE 2.0 Act of 2022 will allow the creation of a searchable database to help people find retirement benefits they lost. The “lost and found” retirement savings will be housed at the Department of Labor and created within two years of the bill’s enactment.
Part-time workers and other changes to retirement savings plans from the SECURE 2.0 Act of 2022:
The SECURE 2.0 Act of 2022 contains many more provisions that could affect your retirement savings account (and, in turn, potentially your taxes and tax breaks).
Some of those provisions include everything from access for part-time workers to employer retirement plans and tax credits for small businesses, to contributions to SIMPLEand SEP plans. Other provisions address issues related to stock ownership and capitalization bonds.
In any case, keep an eye on Kiplinger for updates and detailed information on how the legislation might affect you.
$1.7 Trillion Spending Bill: Omnibus Budget Bill 2023
And if you’re curious about congressional spending… the $1.7 trillion FY 2023 General Appropriations bill contains more than $770 billion for non-defense spending. That includes increased funding for affordable housing and nutrition programs, health care research, education and child care.
There are also funds in the budget bill for assistance to Ukraine and NATO allies, and more than $40 billion for assistance to people dealing with the US. natural disasters such as forest fires, floods and hurricanes.
The nearly two trillion dollar spending bill also increases Veterans Administration funding for health care and allocates $858 billion in defense spending.