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2023-tax-limits-answering-your-faqs

2023 Tax Limits: Answering Your FAQs
2023 Tax Limits: Answering Your FAQs 1600 941 smolinlupinco

With just a few weeks to file your 2022 individual tax return (unless you filed an extension), it’s understandable if your 2022 tax bills are of greater concern than your 2023 tax circumstances. 

But it’s still important to become familiar with tax amounts that may have changed for 2023—particularly because, due to inflation, many of these amounts have been raised more than in previous years. (Note, however, that not all tax figures are adjusted on an annual basis. Some only change upon the enactment of a new law.) 

Here are some common questions (and answers) about 2023 tax limits. 

Last year, I didn’t qualify to itemize deductions on my tax return. Will that change this year? 

A law was enacted in 2017 that increased the standard deduction and reduced or eliminated a variety of other deductions, eliminating the tax benefit of itemizing deductions for many people. 

For 2023, the standard deduction amount is: 

  • $13,850 for single filers (compared to $12,950 in 2022)
  • $27,700 for married couples filing jointly (compared to $25,900 in 2022)
  • $20,800 for heads of households (compared to $19,400 in 2022)

If the amount of your itemized deductions, including mortgage interest, is lower than the standard deduction amount, you will not qualify to itemize deductions for 2023. 

How much can I contribute to an IRA this year? 

In 2023, those who are eligible can contribute $6,500 per year up to 100% of their earned income (compared to $6,000 in 2022).  

Those aged 50 or older can make an additional “catch-up” contribution of $1,000 (no change from 2022). 

How much can I contribute to my 401(k) plan through my employer? 

In 2023, you can contribute up to: 

  • $22,5000 to a 401(k) or 403(b) plan (compared to $20,500 in 2022)
  • $7,500 in catch-up contributions if you’re over 50 years old (compared to $6,500 in 2022)

If I hire a cleaner, do I need to withhold and pay FICA tax? 

In 2023, the threshold for which domestic employers must withhold and pay FICA tax for babysitters, house cleaners, and other independent contractors is $2,600 (compared to $2,400 in 2022). 

How much do I need to earn to stop paying Social Security tax? 

In 2023, you will not owe Social Security tax on amounts earned above $160,200 (compared to $147,000 in 2022). However, you must still pay Medicare tax on all amounts earned. 

Can I claim charitable deductions if I don’t itemize? 

Generally, if you claim the standard deduction on your federal income tax return, you cannot deduct charitable donations. In 2020 and 2021, non-itemizers could claim a limited charitable contribution deduction, but this tax break is no longer applicable for 2022 and 2023. 

How much can I gift someone without worrying about gift tax? 

For 2023, the annual gift tax exclusion is $17,000 (compared to $16,000 in 2022). 

Work with a tax professional

These are only a few of the tax amounts that may apply to you in 2023. If you have questions or would like assistance with your tax return, the CPAs at Smolin can help. Contact us to get started. 

what-you-need-to-know-about-funding-your-revocable-trust-strong

What You Need to Know About Funding Your Revocable Trust
What You Need to Know About Funding Your Revocable Trust 1600 941 smolinlupinco

Revocable trusts, sometimes called “living trusts,” can offer substantial benefits. In the event that you become incapacitated, for example, they facilitate the management of your assets. They can also help avoid probate of said assets. 

But before you can obtain these benefits, you must fund the trust. In other words, you must transfer the title of assets to the trust, or designate the trust as a retirement account or insurance policy beneficiary. 

Take inventory of your assets 

If a revocable trust isn’t fully funded, such as if you acquire new assets but do not transfer title to the trust or name the trust as the beneficiary, those assets may be subject to probate. Additionally, in the event that you become incapacitated, the assets won’t benefit from the established terms of the trust. 

To ensure this is not the case, it’s important to take inventory of your assets on an ongoing basis to ensure it is fully funded. 

Maximize FDIC coverage

FDIC insurance coverage is another important reason to fund your revocable trust. Typically, you can benefit from FDIC insurance protection on bank deposits of up to $250,000. But with a properly structured revocable trust account, you may be able to increase that amount up to $250,000 per beneficiary—that’s $1.25 million, or $2.5 million for jointly owned accounts. 

Because FDIC insurance is offered on a per-institution basis, coverage can be multiplied when you open similar accounts at different banks. That said, FDIC rules pertaining to revocable trust accounts can be complex, such as with trusts that have more than five beneficiaries. 

Consult with a professional

Interested in avoiding probate? A financial advisor can help you take a periodical inventory of your assets and/or maximize the insurance coverage of your bank deposits. Contact us to speak with one of our financial professionals today. 

business-related-tax-limits-have-increased-for-2023

Business-Related Tax Limits Have Increased for 2023
Business-Related Tax Limits Have Increased for 2023 1488 875 smolinlupinco

A variety of tax limits that affect businesses are indexed on an annual basis. As a result of high inflation, many of these limits have increased more than usual for 2023. 

Here are a few that businesses should keep in mind for 2023:  

Social Security tax

For 2023, the amount of employee earnings subject to Social Security tax is capped at $160,200 (compared to $147,000 in 2022). 

Deductions

For Section 179 expensing, the limit has increased to $1.16 million (compared to $1.08 million), with a phaseout of $2.89 million (compared to $2.7 million).

Income-based phase-out for certain limits on the Sec. 199A qualified business income deduction begins at $364,200 for married couples filing jointly (compared to $340,100). For other filers, this amount is $182,100 (compared to $170,050). 

Retirement plans

Increases for retirement plans are as follows: 

401(k) plans

  • Employee contributions: $22,500 (compared to $20,500) 
  • Catch-up contributions: $7,500 (compared to $6,500) 

SIMPLE plans

  • Employee contributions: $15,500 (compared to $14,000) 
  • Catch-up contributions: $3,500 (compared to $3,000) 

Additional increases

  • Employer/employee contributions to defined contribution plans, not including catch-ups: $66,000 (compared to $61,000) 
  • The maximum compensation used to determine contributions: $330,000 (compared to $305,000) 
  • The annual benefit for defined benefit plans: $265,000 (compared to $245,000) 
  • The amount used to define a highly compensated employee: $150,000 (compared to $135,000) 
  • The amount used to define a key employee: $215,000 (compared to $200,000) 

Additional employee benefits

The qualified transportation fringe-benefits employee income exclusion is $300 monthly (compared to $280). 

Flexible Spending Account (FSA) healthcare contributions have increased to $3,050 (compared to $2,850). Note that the dependent care contribution limit of $5,000 has remained the same. 

Health Savings Account (HSA) contributions have increased as follows: 

  • Individual coverage: $3,850 (compared to $3,650) 
  • Family coverage: $7,750 (compared to $7,300) 

The catch-up contribution limit of $1,000 has remained the same. 

Questions? Smolin can help 

These are only some of the tax limits and deductions that could affect your business—and additional rules could apply. If you have questions, our CPAs can help. Contact us to get started. 

how-do-auditors-evaluate-accounting-estimates

How Do Auditors Evaluate Accounting Estimates? 
How Do Auditors Evaluate Accounting Estimates?  1600 942 smolinlupinco

When businesses report their finances, they often use accounting estimates determined by management. For example:  

  • Allowance for doubtful accounts
  • Warranty obligations
  • Costs of pending litigation
  • Goodwill impairment
  • Fair values of acquired intangible assets

When auditors evaluate the amounts reported on these financial statements, how do they determine whether those amounts are reasonable? 

Methods used to evaluate accounting estimates

As part of their standard audit procedures, external auditors evaluate accounting estimates. These accounting estimates can be based on a combination of subjective and objective information, resulting in measurement uncertainty. 

Methods include: 

Inquiry

Auditors may inquire about underlying assumptions, or inputs, that were used for making estimates. They will use the information from these inquiries to determine whether the inputs seem complete, accurate, and relevant. 


Estimates based on objective inputs (i.e., published interest rates or percentages from previous reporting periods) are typically less susceptible to bias than estimates based on speculative, unobservable inputs—particularly if management does not have prior experience with similar estimates. 

Testing 

If and when it’s possible, auditors may try to recreate estimates determined by management by using the same inputs, or even their own. If the auditor’s estimate is significantly different from the estimate on the financial statement, they will ask management for an explanation. In cases involving complex items, an independent specialist may also be called in.

Auditors may also compare previous estimates to what occurred after the date of the financial statement, as the outcome of an estimate tends to differ from management’s initial estimate due to errors, unforeseeable circumstances, and/or management bias. 

While estimates that are consistently aligned with what happened later add credibility, those with significant differences may cause an auditor to become more skeptical of management’s current estimates, often necessitating additional audits. 

Updates to auditing processes

In 2018, the Public Company Accounting Oversight Board (PCAOB) published revisions to the requirements for auditing accounting estimates and using specialists (often to support accounting estimates made by management) in audits. 

These revisions were published in: 

Release No. 2018-005

Release No. 2018-005, Auditing Accounting Estimates, Including Fair Value Measurements, is a risk-based standard emphasizing the importance of professional skepticism and the attention to potential management bias among auditors when evaluating estimates made by management. 

Per the updated standard, auditors should consider both corroborating and contradictory evidence obtained during the audit. 

Release No. 2018-006 

Release No. 2018-006, Amendments to Auditing Standards for Auditor’s Use of the Work of Specialists, extends the auditor’s responsibility for evaluating specialists, requiring them to do more than simply obtain an understanding of their work. They must also perform procedures assessing the appropriateness of the company’s data, along with the assumptions and methods used. 

December 2022 analysis report

The PCAOB published a post-implementation review of these updates in December 2022. According to Interim Analysis Report: Evidence on the Initial Impact of New Requirements for Auditing Accounting Estimates and the Auditor’s Use of the Work of Specialists, approximately 33% of surveyed audit firms reported that the new requirements improved auditing practices. Other firms reported that the effects were limited, with no significant consequences on the audit process fees or hours. 

While the newer, more consistent guidance pertains to public companies, these effects filter down to private entity audits that use accounting estimates or depend on specialists. 

Accounting gray areas? Smolin can help. 

Because they involve a high level of subjectivity and judgment, accounting estimates and fair value measurements may be susceptible to misstatement. It can be particularly challenging to predict metrics that determine these accounting estimates. As a result, more auditor focus is required today than in previous, more stable accounting periods.  

It’s critical that you’re prepared to provide comprehensive documentation to support your estimates during the upcoming audit season. Need some assistance? Contact us to work with a knowledgeable accounting professional. 

5-reasons-to-outsource-your-accounting-needs

5 Reasons to Outsource Your Accounting Needs
5 Reasons to Outsource Your Accounting Needs 1600 941 smolinlupinco

CPA firms don’t just do audits and tax returns. They’re also available to help with your everyday accounting needs, from advisory services to payroll and sales tax filing. 

Is it time for your business to outsource its accounting needs? Here are five reasons you should hire a CPA. 

1. Professional insights

When you outsource your accounting to a knowledgeable CPA, you gain access to professional tax, legal, and financial advice. This helps your business remain compliant with rules and regulations while also avoiding costly errors resulting from misunderstanding complex policies. 

An accounting firm will offer you a second set of eyes, giving you the peace of mind that your company’s books accurately reflect your company’s performance. A CPA can also help streamline your accounting processes and assist you with accurately recording complex financial transactions. 

2. Scalable services

Your financial situation is bound to evolve, and a CPA will allow you to scale services up or down as needed. 

If you’re a start-up business, you won’t need to worry about outgrowing your bookkeeper or training them to take on more advanced accounting and tax tasks. And if you take on a major project—a new product launch or a merger with a strategic buyer, for example—your CPA has the knowledge and experience to guide you toward the best possible financial outcome. 

Additionally, if you unexpectedly lose your CFO, outsourcing can be a helpful temporary fix while you look for a suitable replacement (especially in today’s tight labor market). 

3. Cost-efficiency

By outsourcing to a CPA, you can save money on payroll taxes and insurance costs related to hiring an in-house accountant. Additionally, thanks to economies of scale with software purchases and usage, CPAs can likely provide some accounting service at a more affordable rate than your firm can on its own or with independent service providers. 

4. Convenience

When you delegate your accounting needs to a CPA, your team is freed up for other tasks such as marketing, product development, and more. Outsourcing will also free up resources for higher-value tasks—such as negotiating with prospects or focusing on client relationships—that can increase cash flow and optimize your organization’s efficiency. 

5. Confidence

When you involve a knowledgeable accounting professional in your business, you gain confidence with stakeholders if you plan to borrow money or solicit investment capital. 

When you hire a CPA, you also demonstrate that your business is committed to keeping accurate records and accessing the professional knowledge needed to handle complex matters. 

Outsource your accounting needs to Smolin

Could you benefit from outsourcing your daily accounting tasks? Whether you’re looking for a temporary or permanent CPA, we can offer a cost-effective service plan that works with—and adapts to—your current and future business needs. Contact us to get started. 

7-ways-secure-act-could-affect-your-small-business

7 Ways SECURE 2.0 Could Affect Your Small Business
7 Ways SECURE 2.0 Could Affect Your Small Business 1600 942 smolinlupinco

Does your small business have a retirement plan? Even if it doesn’t, you may start to see beneficial changes as a result of the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0), which was signed into law in December 2022. 

Built upon the original SECURE Act of 2019, SECURE 2.0 will take effect over several years. Some of its provisions may affect small businesses. 

1. Automatic retirement plan enrollment

The SECURE 2.0 law will require 401(k) plans beginning after December 31, 2024, to automatically enroll employees once they become eligible (though employees will have the choice to opt out). 

The initial automatic enrollment amount would be between 3-10%, with the amount increasing by 1% each year until it reaches between 10-15%. 

Note that all current 401(k) are grandfathered into the act, and certain small businesses may be exempt. 

2. Coverage for part-time employees

The original SECURE Act requires that employers allow part-time employees to participate in their 401(k) plans, provided they meet one of the following requirements:

  1. One year of service and at least 1,000 hours worked, OR
  2. Three consecutive years of service with at least 500 hours worked 

Beginning after December 31, 2024, SECURE 2.0 will reduce the three-year rule to two years. It will also extend the long-term, part-time coverage rules to ERISA 403(b) plans. 

3. Matching contributions for employees with student loan debt

Under SECURE 2.0, employers will be allowed to make matching contributions to 401(k)s and certain other retirement plans for “qualified student loan payments.” 

This means that, after December 31, 2023,  your employees who cannot afford to save for retirement due to student loan debt repayments will still be able to receive matching employer contributions into their retirement plans. 

4. “Starter” 401(k) plans

The SECURE 2.0 law will allow employers that don’t sponsor retirement plans to offer “starter” 401(k) plans—or safe harbor 403(b) plans—to employees. This would require all employees to be enrolled at a 3-15% of compensation deferral rate by default. 

The annual deferral limit would be the same as the IRA contribution limit, with an additional $1,000 in catch-up contributions beginning at age 50. This provision will take effect starting December 31, 2023. 

5. Pension plan tax credit

As of December 31, 2022, SECURE 2.0 increases the tax credit for eligible small employer pension plan start-up costs. This incentivizes businesses to establish and offer retirement plans. 

6. Higher catch-up contributions

Participants in certain retirement plans can currently make additional catch-up contributions once they reach age 50 or older, with a limit of $7,500 for 401(k) plans in 2023. With SECURE 2.0, this catch-up contribution limit will increase to the greater of $10,000 or 150% of the regular amount for individuals between the ages of 60-63. 

This provision will take effect for taxable years beginning after December 31, 2024, with increased amounts being indexed for inflation after December 31, 2025. 

The catch-up amounts for SIMPLE plans will also increase. 

7. Military spouse tax credit

Effective in 2023, SECURE 2.0 offers a new tax credit for eligible small employers for each military spouse participating in their defined contribution plan. 

Questions about how the SECURE 2.0 law could affect your small business? Contact us

These are only some of the changes resulting from SECURE 2.0. If you have questions about how the new law could affect your small business, our CPAs can help. Contact us to get started. 

answers-to-your-tax-season-faqs

Answers to Your Tax Season FAQs
Answers to Your Tax Season FAQs 1600 942 smolinlupinco

On January 23, the IRS opened the 2023 individual income tax return filing season for accepting and processing returns for the 2022 tax year. 

If you typically file closer to the mid-April deadline (or if you file for an extension), you may want to consider filing your taxes earlier this year. And it’s not just about getting a head start on meeting deadlines—filing early can also protect you from tax identity theft. 

Here’s what you need to know about filing your taxes this year. 

How does tax identity theft work? 

A tax identity theft scam typically involves a thief using another person’s personal information to file a fraudulent tax return early in the season to claim a substantial refund. The actual taxpayer will not discover the identity theft until, after filing their own taxes, the return is rejected by the IRS because the same Social Security number has already been used to file taxes that year. 

While the taxpayer should ultimately be able to prove the legitimacy of their return, the process can be frustrating, time-consuming, and potentially delay a refund. 

The best way to protect against having your tax identity stolen? Filing early. If you file first, the IRS will reject the fraudulent tax return. 

What are the deadlines for this year? 

While the tax filing deadline is typically April 15 of each year, the deadline for most taxpayers this year is Tuesday, April 18, 2023. This is because April 15 falls on a weekend, and the District of Columbia’s Emancipation Day holiday falls on Monday, April 17. 

Those requesting an extension will have until October 16, 2023, to file their taxes. Note that the extension to file a return does not grant an extension to pay taxes. You should still estimate and pay any taxes owed by the regular deadline to avoid penalties. 

When will I receive my tax documents? 

Before filing your tax return, you will need to receive all your Form W-2s and 1099s. The deadline for employers to issue 2022 W-2s and for businesses to issue 2022 1099s is January 31. 

If you have not received your W-2 or 1099 by February 1, you should contact the entity that should have issued it. If that doesn’t help, contact a professional tax advisor to determine how to proceed. 

Should I file early? 

In addition to protecting yourself from tax identity theft, early filing has advantages. The sooner you file your taxes, the sooner you will receive a refund. The IRS anticipates that most refunds will be issued within 21 days, with this time potentially being shorter if you file electronically and receive your refund via direct deposit. 

Another advantage of direct deposit is that it reduces the chances of a refund check getting lost, stolen, stuck in postal delays, or returned to the IRS as undeliverable. 

Plan ahead for your taxes with us

Getting ahead of your taxes can be complicated, so it’s best to consult with a professional to ensure you have everything in place for a successful tax filing. Contact us to work with an experienced tax professional for your 2022 taxes.

lifetime-gifts-vs-bequests-at-death-which-option-is-right-for-you

Lifetime Gifts vs. Bequests at Death: Which Option is Right For You?
Lifetime Gifts vs. Bequests at Death: Which Option is Right For You? 1600 941 smolinlupinco

One of the primary goals of estate planning is to pass along as much of your wealth and assets as possible to your family, which involves protecting your estate from gift and estate taxes. One way to do this is by giving gifts during your lifetime. 

Considering the inflation-adjusted $12.92 million gift and estate tax exemption, lifetime gifts are an appealing option for many. But they’re not the right choice for everyone. Depending on your unique situation, you may find that there are tax advantages to keeping assets in your estate during your lifetime and making bequests at death. 

Gifts vs. bequests: understanding the tax implications

Lifetime gifts 

When you make lifetime gifts and remove assets from your estate, you are protecting future appreciation from estate tax. However, the recipient will receive a “carryover” tax basis, meaning they assume your basis in the asset. 

If a gifted asset has a low basis compared to its fair market value (FMV), a sale will trigger capital gains taxes based on the difference. 

Bequests at death

When you transfer assets at death, the recipient can sell them with little or no capital gains tax liability. Those assets currently receive a “stepped-up basis” equal to their date-of-death FMV. 

Which strategy has the lower tax cost? 

Which is the better option—transferring an asset by gift now or by bequest later? That depends on a few factors, including: 

  • The asset’s basis-to-FMV ratio
  • The likelihood that its value will continue to appreciate
  • Your exposure to gift and estate taxes, now or in the future 
  • How long you expect the recipient to hold the asset after receiving it 

Navigating uncertainty with future estate tax law

It can be difficult to choose the right time to transfer wealth, especially because there are many unknowns as to what will happen to the gift and estate tax regime down the road—for example, without further legislation from Congress, the base gift and estate tax exemption will return to inflation-adjusted $5 million in 2026. 

The good news is that with carefully designed trusts, you can reduce the impact of this uncertainty. 

If the tax exemption decreases

If you believe the gift and estate tax exemption will be reduced, you can take advantage of the current exemption by transferring appreciated assets to an irrevocable trust. This will help you avoid gift tax and protect future appreciation from estate tax. 

As a result, your beneficiaries will receive a carryover basis in the assets. If and when they sell them, they will be subject to capital gains taxes. 

If the tax exemption stays the same or increases

If the gift and estate tax exemption stay the same or increases, a trust gives the trustee certain powers that, when exercised, will include the assets in your estate. 

Your beneficiaries will then receive a stepped-up basis, with the higher exemption shielding all or most of the assets’ appreciation from estate taxes. 

Find the right strategy with Smolin

If you haven’t yet decided between lifetime gifts or bequests at death, it’s helpful to work with a professional to monitor legislative developments so you can update your estate plan accordingly. 

At Smolin, our CPAs can work with you to find the right strategy for your situation. Contact us to get started today. 

5-tax-saving-ways-to-pay-for-your-childs-college-education

5 Tax-Saving Ways to Pay for Your Child’s College Education
5 Tax-Saving Ways to Pay for Your Child’s College Education 1600 942 smolinlupinco

Do you have a child or grandchild currently attending college? Congratulations! 

To help cover the costs of post-secondary education, you may have saved up over the course of several years in a tax-favored account, such as a 529 plan. Once your child is enrolled in college, though, you may be able to claim a number of tax breaks. 

For example: 

1. Tuition tax credits

The American Opportunity Tax Credit (AOTC) can be taken up to $2,500 per student for the first four years of college. This includes a 100% credit for the first $2,000 and a 25% credit for the second $2,000 in tuition, fees, and books. This credit is 40% refundable up to $1,000, which means you can get a refund if the credit amount is higher than your tax liability. 

You can also take the Lifetime Learning Credit (LLC) of up to $2,000 per family for each additional year of post-secondary education, which includes a 20% credit for up to $10,000 in tuition and fees. 

That said, only one education tax credit can be claimed per eligible student per year. To claim the credit, the taxpayer must receive a Form 1098-T statement from the school. 

Note that both credits will be phased out for those with certain modified adjusted gross income (MAGI): 

  • Between $160,000 and $180,000 for married couples filing jointly
  • Between $80,000 and $90,000 for singles

2. Scholarships

If certain conditions are met, scholarships can be exempt from income tax. One of these conditions is that the scholarship cannot be compensation for services and must instead be used for tuition, fees, books, and supplies—not for room and board.

Remember that a tax-free scholarship will reduce the expenses considered when computing the AOTC and LLC. As a result, those credits may be reduced or eliminated. 

3. Employer assistance

If your child’s college expenses are covered by your employer, that payment is considered a fringe benefit and is taxable to you as compensation. 

If it’s part of a scholarship program outside of the pattern of employment, however, it will be treated as a scholarship—assuming the scholarship requirements are met. 

4. Tax-exempt gifts

When someone gifts you money to cover your child’s college expenses, that person is generally subject to gift tax. For 2023, the gift tax exclusion threshold is $17,000 per recipient; married donors who give combined gifts may exclude gifts of up to $34,000. 

However, if someone—such as a grandparent—submits your child’s tuition payments directly to the educational institution, there is an unlimited gift tax exclusion. This applies only to direct tuition costs (as opposed to room and board, books, supplies, and more). 

5. Retirement account withdrawals

You can withdraw money from your IRA or Roth IRA account at any time without incurring the 10% early withdrawal penalty, as long as those withdrawals are used to pay for college costs. Note, however, that the distributions are subject to tax under the usual rules. 

You may also have the option to withdraw from or borrow against your employer retirement plan—but before doing so, ensure you fully understand any and all tax implications, including any potential penalties. 

Plan ahead with Smolin

Not all of the above-mentioned tax breaks can be used in the same year, and some may also impact qualification amounts for other tax breaks. 

Not sure which option is best for your situation? Our CPAs can help. Contact us if you would like to discuss any of these options, or other alternatives that may apply to your situation. 

secure-2-0-helps-you-save-for-retirement

SECURE 2.0 Helps You Save for Retirement
SECURE 2.0 Helps You Save for Retirement 1488 875 smolinlupinco

Built on the original SECURE Act of 2019, the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0) was signed into law on December 29, 2022. 

The SECURE Act of 2019 made major changes to retirement provisions, including the required minimum distribution (RMB) rules. Here are some additional changes you should be aware of with SECURE 2.0. 

Increased age for beginning RMDs 

Employer-sponsored qualified retirement plans, traditional IRAs, and individual retirement annuities are all subject to RMB rules, which require that distribution begins by a specified start date. 

Under the SECURE 2.0 law, as of January 1, 2023, the start date will increase from age 72 to age 73. On January 1, 2033, this will increase to age 75. 

Higher “catch-up” contributions

Currently, participants in certain retirement plans are able to make additional catch-up contributions once they reach age 50 or older, with a limit on catch-up contributions to 401(k) plans of $7,500 for 2023. 

With SECURE 2.0, this limit is increased for individuals between the ages of 60 and 63 to $10,000 or 150% of the regular catch-up amount, whichever is greater. The provision will be effective for taxable years beginning January 1, 2025 (along with increased catch-up amounts for SIMPLE plans). 

After 2025, the increased amounts will be indexed for inflation.

Allowance of tax-free rollovers

With SECURE 2.0, beneficiaries of 529 college savings accounts will be permitted to make direct trustee-to-trustee rollover contributions from a 529 account to a Roth IRA in their names, without tax or penalty. 

This provision is effective for distributions after December 31, 2023, and several rules still apply. 

“Matching” contributions for employees with student loan debt

SECURE 2.0 will allow employers to make matching contributions to 401(k) and certain other retirement plans for qualified student loan payments. As a result, employees who are repaying student loan debt and cannot afford to save for retirement can still receive matching contributions from employers in their retirement plans. 

This will be effective beginning January 1, 2024. 

Changes to ABLE accounts

There are also changes to non-retirement plan provisions, including a change to tax-exempt Achieving a Better Life Experience (ABLE) accounts, which are designed to assist individuals with disabilities. 

Currently, ABLE account beneficiaries must have experienced a disability or blindness before age 26. With SECURE 2.0. This age limit is increased to 46, making more people eligible for ABLE account benefits. 

This is effective for tax years beginning after December 31, 2025. 

Questions? Contact us

These are only some of the many changes brought about by SECURE 2.0. If you have any questions about how the new law will affect you, contact us.

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