We thought it helpful to provide an overview of the 2023 government funding bill containing legislation that makes the most significant changes to the U.S. retirement savings system in decades. Most of the key provisions are effective in the 2024-2025 timeframe, but smaller adjustments (such as an increase in the RMD age to 73) will be effective in 2023.
Key changes will be phased in over a multi-year period
The most significant changes to the U.S. retirement savings system enacted as part of the recent legislation include a higher RMD age (rising to age 75 by 2033), higher catch-up limits for those ages 60 – 63, and the ability to rollover unused 529 funds into a Roth IRA up to $35,000.
Detailed descriptions of the key provisions as follows:
Higher RMD age:
The RMD age is raised to age 73 in 2023 and age 75 starting 2033.
Tax and penalty free rollover from 529 to Roth IRA:
Beneficiaries of 529 college savings accounts are permitted to rollover up to $35,000 from a 529 account in their name to a Roth IRA account. Rollovers are subject to IRA annual contribution limits and are available for 529 accounts which have been open for more than 15 years. Rollovers are permitted starting in 2024.
Reduced penalty for failure to take RMDs:
A tax penalty of 50% for failure to take RMDs is reduced to 25%. For IRAs, the tax is further reduced to 10% if corrected. Reduction is effective as of the bill’s signing.
Higher catch-up contribution allowances:
For those ages 60-63, the catch-up contribution limit is raised to the greater of $10,000 or 50% higher than the regular catch-up amount. The higher allowance is effective starting in 2025.
Expanded emergency expense distribution allowances:
Emergency distributions of up to $1,000 are permitted for unforeseeable or immediate financial needs relating to personal or family emergency expenses once per year, to be paid back within three years (effective 2024).
Emergency withdrawals for disaster relief:
Withdrawals of up to $22,000 from employer retirement accounts or IRAs are permitted for individuals affected by a federally declared disaster. These emergency-related withdrawals are permitted for disasters occurring on or after January 26, 2021.
Expanded administrative cost tax credit for new businesses:
A 50% tax credit for administrative costs incurred by new businesses is raised to 100% for companies with 50 or less employees effective 2023.
Employer-offered incentives:
De minimis financial incentives (such as gift cards or other financial awards) are permitted for sponsor efforts to boost employee participation in retirement savings plans, effective as of the signing of the bill into law.
Automatic enrollment:
Eligible employees are required to be automatically enrolled in new 401(k) and 403(b) retirement savings plans with a contribution between 3-10%, rising by 1% annually (up to 15%) unless employees opt out. Automatic enrollment is effective starting in 2025.
MEP and PEP access for 403(b) plans:
Access to multiple employer plans (MEPs) and pooled employer plans (PEPs) is expanded to include 403(b) plans.
Matching contributions for employee student loan payments:
Plan sponsors may make matching contributions to 401(k), 403(b), and simple IRA plans for qualified student loan payments made by employees effective 2024.
If you have any specific questions about this new piece of legislation, please let Randy, Matty, or myself know.
About the Author
Matt Price serves as a Partner and Director for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their three children and "Fisher" the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 11 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes everyone needs a wealth coach!
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When Steward Partners Investment Solutions LLC, its affiliates and Steward Partners Wealth Managers provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account. Steward Partners is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Steward Partners provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Steward Partners will not be considered a “fiduciary” under ERISA and/or the Code. Tax laws are complex and subject to change. Steward Partners does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.
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