On December 29, 2022, President Biden signed the SECURE 2.0 Act of 2022, enacting a variety of changes to retirement provisions. We have presented some key changes stipulated by this legislation below:

Changes to Required Minimum Distributions

The SECURE 2.0 Act (“Act”) increases the required minimum distribution age as follows:

  • Beginning January 1, 2023, the required minimum distribution age increases from age 72 to age 73.
  • Beginning January 1, 2033, the required minimum distribution age increases from age 73 to age 75.

The Act also lowers the excise tax on those who fail to take their requirement minimum distributions from a current excise tax of 50% of the required distribution that should have been taken to 25%. The penalty is further reduced to 10% if the individual takes all of their required and past-due distributions and files a tax return paying tax on the required distributions before receiving any notice of assessment and within two years of the missed distribution.

Catch-Up Contributions

Beginning in 2025, a participant in a qualified retirement plan (401(k), 403(b) or 457(b) plans) who is age 60, 61, 62 or 63 can make catch-up contributions equal to the greater of $10,000 (to be indexed for inflation) or 150% of the regular catch-up contribution limit at that time. This represents an increase on the current 2023 catch-up contribution limit of $7,500.

Beginning in 2024, participants in qualified retirement plans who are age 50 or over and paid compensation in excess of $145,000 will be required to make catch-up contributions on a ROTH basis.

Self-employed Retirement Plans

The SECURE Act 2.0 also makes some beneficial changes to retirement provisions for self-employed individuals. Beginning in the 2023 tax year, the Act allows for the creation of ROTH SEP IRA’s.

In addition, the Act allows each self-employed individual to set up a solo 401(k) plan after the end of the taxable year and make both deferral and matching contributions by the due date of the individual’s tax returns.

529 Plans Rollover to ROTH IRA

Beginning in 2024, the SECURE Act 2.0 allows a tax and penalty-free rollover from a 529 account to a ROTH IRA account under certain conditions:

  • The 529 plan must have been open for at least 15 years
  • The lifetime maximum rollover amount is $35,000 in aggregate.
  • The rollovers would be subject to the ROTH IRA annual contribution limits.
  • No income limitation would apply

Updates for Employers

The SECURE Act 2.0 changes some requirements for employers as well. Beginning in 2023, the Act mandates automatic enrollment for new 401(k) and 403(b) plans offered by employers with a required rate of at least 3% of pay once eligibility requirements are met. Employees will have the option to elect out.

In addition, for those employers who employ part-time workers, the years of service eligibility requirement is reduced from three years to two years beginning after 2024. Thus, if a part-time employee completes 500 hours of service for two consecutive years, then the Act will require employers to allow the part-time employee to participate in the 401(k) plan.

TAX UPDATE: Tax Deadline Extensions for most California taxpayers:

Due to the recent California storms and following a disaster declaration by the Federal Emergency Management Agency (FEMA), both the IRS and California Franchise Tax Board have extended many tax deadlines to May 15, 2023 for many California taxpayers (see counties listed below). All income tax and payroll/excise tax filings including tax payments due between January 8, 2023 and April 18, 2023 will have an extended tax deadline of May 15, 2023 to both file and pay.

Those residents or businesses located in the following counties qualify for the extended deadlines: Alameda, Colusa, Contra Costa, El Dorado, Fresno, Glenn, Humboldt, Kings, Lake, Los Angeles, Madera, Marin, Mariposa, Mendocino, Merced, Mono, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Benito, San Bernardino, San Diego, San Francisco, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Tulare, Ventura, Yolo, and Yuba counties

Contact Us

Please feel free to contact us if you have questions about the SECURE 2.0 Act and its implications for your retirement savings or regarding the updated extended deadlines. We are happy to discuss any questions that you may have about these new provisions.