SECURE 2.0 Act of 2022 Makes Sweeping Changes to Retirement Savings Plans; Overhauls Retirement Plan Tax Rules

On December 29, 2022, the Consolidated Appropriations Act of 2023 (HR 2617) was signed into law. The Act includes important provisions affecting retirement savings plans which are intended to build upon the 2019 SECURE Act.  Below are some highlights of selected provisions with potentially broad effect. However, the Act includes some 90 provisions affecting retirement savings plans (DOWNLOAD SUMMARY OF ALL PROVISIONS HERE).

(1) expanding automatic enrollment in retirement plans (The provision is effective for plan years beginning after Dec. 31, 2024);

(2) raising the age at which an individual must begin taking required minimum distributions from 72 to 73 (the new required minimum distribution age is 73 as of Jan 1, 2023 and will increase to 75 on Jan 1, 2033);

(3) expanding the hardship withdrawal rules so more individuals can access retirement funds without penalty, including $1,000 per year for emergency expenses ;

(4) increasing the credit available for small employer pension plan startup costs (up from 50% to 100%);

(5) simplifying the saver's tax credit to incentivize more individuals to save for retirement ;

(6) indexing IRA catch-up limit (indexed for inflation, effective for tax years beginning after Dec 31, 2023);

(7) increasing the catch-up limit to apply at age 62, 63, and 64 (This provision, which is effective for taxable years beginning after Dec. 31, 2024, increases the limit to the greater of $10,000 or 50% more than the regular catch-up amount in 2025 for individuals who are between 60 and 63 years old);

(8) allow for tax and penalty free rollovers of leftover funds from 529 accounts to Roth IRAs, under certain conditions (this provision is effective with respect to distributions after December 31, 2023);

(9) creating a military spouse retirement plan eligibility credit for small employers; and

(10) creating a safe harbor for correction of employee elective deferral failures.