On December 29, 2022, President Biden signed the Consolidated Appropriations Act of 2023 into law, which included the much-anticipated SECURE Act 2.0 to supplement the original SECURE Act passed in 2019. Below are some key highlights of the newly passed legislation,1 which we feel may be most beneficial to our clients and spur additional conversation about your financial planning strategies.
Required Minimum Distribution (RMD) Changes
- The required minimum distribution (RMD) age increased to 73 beginning in 2023, up from 72. In 2033, the RMD age will increase to 75.
Catch-up Contribution Enhancements and Changes
- The catch-up contribution limit for 401(k), 403(b), and 457(b) participants ages 60, 61, 62, or 63 will increase beginning in 2025 to the greater of $10,000 or 150 percent of the regular catch-up contribution limit.
- Catch-up contributions to 401(k), 403(b), and 457(b) plans must be made to Roth option accounts beginning in 2024 for those with wages of more than $145,000. This change does not impact catch-up contributions to Roth IRA accounts.
- Catch-up contributions to IRA and Roth IRA accounts will be indexed for inflation beginning in 2024.
Roth Account Enhancements
- Effective immediately, employers have the option to allow 401(k) and 403(b) participants to elect that employer contributions be deposited to Roth accounts. These contributions will then be includable in the participant’s taxable income.
- Starting in 2024, RMDs will not be required on designated Roth accounts held in employer retirement plans. This provision aligns to the current treatment with Roth IRA accounts.
- Beginning this year, SIMPLE IRA and SEP-IRA plans will be allowed to include a Roth account option.
Transfer of 529 Plan to Roth IRA
- Beginning in 2024, a new lifetime limit of $35,000 may be transferred from a 529 plan to a Roth IRA account. The Roth IRA account must be in the same name as the 529 plan beneficiary and the 529 plan account must have been maintained for 15 years or longer. In addition, the annual limit that can be transferred is the Roth IRA contribution limit for the year, less any regular IRA or Roth IRA contributions that have already been made in that year. Any contributions to the 529 plan account within the prior five years are not eligible for transfer.
Other Provisions
- Employers will have an option to treat student loan repayments as elective deferrals for purposes of calculating employer matching contributions beginning in 2024.
- The $100,000 maximum annual Qualified Charitable Distribution limit will be indexed for inflation starting in 2024.
- Beginning in 2024, a surviving spouse beneficiary of a retirement account will have a new option to be treated as the deceased spouse.
We are honored to help leverage this newly passed legislation to support you in using your wealth to accomplish what is important to you. If you have any questions about the items above, or would like to discuss them in more detail, please contact your CCM Advisor.
KEY 2023 TAX FIGURES
From tax rates to HSA contribution limits and estate tax exclusions, many important tax-related figures have been updated. See a table of some of the most commonly referenced data here: carlsoncap.com/2023-tax
Sources for numbers and data cited throughout this summary can be found at:
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.
