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).
