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Explaining the 2022 Omnibus Bill Thumbnail

Explaining the 2022 Omnibus Bill

On December 23, 2022, Congress passed the Consolidated Appropriations Act of 2023. The sprawling year-end spending “omnibus” package includes an important new law that could affect your taxes and financial planning: the Setting Every Community Up for Retirement Enhancement Act 2.0 (aka SECURE 2.0). 

SECURE 2.0 incorporates provisions from SECURE 1.0 and addresses a wide array of areas that make major changes to retirement planning, including:


Required Minimum Distributions (RMDs). The first SECURE Act generally raised the age at which you must begin to take RMDs from traditional IRAs and other qualified plans, from 70½ to 72. SECURE 2.0 increases the age to 73, starting January 1, 2023, and boosts it to 75 on January 1, 2033. This change allows people to delay taking RMDs and paying tax on them. SECURE 2.0 also relaxes the consequences for failing to take full RMDs, reducing the 50% excise tax to 25%. If the failure is corrected in a “timely” manner, this drops to 10%.


Catch-up contributions. Beginning January 1, 2025, individuals who are ages 60 to 63 can make catch-up contributions to 401(k) plans and SIMPLE plans up to the greater of $10,000 or 50% over the catch-up amount. The increased amounts are indexed for inflation after 2025. (The annual limit on catch-up contributions is $7,500 for 2023, up from $6,500 for 2022.)

SECURE 2.0 also changes the taxation of catch-up contributions - catch-up contributions will be treated as post-tax Roth contributions. Previously, you could choose whether to make catch-up contributions on a pre- or post-tax basis. An exception is provided for employees whose compensation is $145,000 or less (indexed for inflation).


Qualified charitable distributions (QCDs). QCDs have gained in popularity as a way to satisfy RMD requirements while also fulfilling philanthropic goals. With a QCD, after age 70½ you can distribute up to $100,000 per year directly to a 501(c)(3) charity.You can’t claim a charitable deduction, but the distribution is removed from taxable income. Under SECURE 2.0, you also can make a one-time QCD transfer of up to $50,000 through a charitable gift, annuity, or charitable remainder trust (as opposed to directly to the charity). The law also indexes the annual IRA charitable distribution limit for inflation.

Automatic enrollment. Beginning in 2025, new 401(k) plans must automatically enroll participants when they become eligible. However, the employees may opt out. The initial contribution amount is at least 3% but no more than 10%. The amount is thenautomatically increased every year until it reaches at least 10% but no more than 15%. Existing plans are exempt and the law provides exceptions for small and new businesses.


Part-time employee eligibility. SECURE 2.0 lowers the hurdles for long-term, part-time employees to participate in 401(k) plans. They’ll still need to work at least 500 hours before becoming eligible but they’ll have to work for only two consecutive years, rather than the three years required previously. This provision takes effect for plan years beginning January 1, 2025.


Small business tax credits. To incentivize small businesses to establish retirement plans, SECURE 2.0 creates and enhances some tax credits. For example, it increases the startup credit from 50% to 100% of administrative costs for employers with up to 50 employees. An additional tax credit is available for some non-defined benefit plans, based on a percentage of the amount the employer contributes, up to $1,000 per employee. 


Tax-free rollovers from 529 plans to Roth IRAs. SECURE 2.0 allows a beneficiary of a 529 college savings account to make direct rollovers from a 529 account to a Roth IRA without tax or penalty. This provides an investment option for 529 accounts that have a balance remaining after the beneficiary’s education is complete. The 529 account must have been open for more than 15 years and other rules apply. This provision is effective for distributions beginning in 2024. 


Future Announcements

These are only some of the provisions in the new law. The entire omnibus package is sure to generate additional guidance. We’ll keep you informed of any developments that could affect your financial health