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Federal Budget Bill Contains New Provisions for Retirement Savings

S.J. Steinhardt
Published Date:
Dec 29, 2022

GettyImages-1125719715 Retiring Retirement Elder Old

Many Americans can expect some additional benefits in the new retirement package that is part of Congress’s budget deal, CNBC and others reported.

A section of the omnibus appropriations bill that cleared Congress last week, known as Secure 2.0, includes dozens of retirement-related provisions. Among them are: an increase in catch-up contributions for those aged 50 and over to $7,500 in 2023, in addition to  regular 401(k) contribution limits of $22,500; a change that will allow workers to have their employers’ matching contributions be designated as Roth contributions if the plan allows it; and an increase in the age for required minimum distributions (RMDs) — amounts that must be withdrawn annually from certain retirement accounts — from 72 to 73 in 2023 and 75 in 2033. The penalty for failing to take these RMDs will also decrease to 25 percent of the amount that should have been withdrawn next year, down from the current 50 percent. 

“On the edges, [the changes] do present a lot of retirement-planning opportunities that near-retirees would want to be aware of,” Joel Dickson, head of advice methodology for Vanguard, told CNBC.

The law also contains a provision that require companies that start new employer-sponsored plans to enroll employees automatically, Accounting Today reported, though workers can opt out. The enrollment starts with a 3 percent contribution rate that would rise 1 percent annually until it reaches 10 percent of gross pay. Businesses with 10 or fewer employees and those in operation for fewer than three years are exempt from these plans.

Higher-income Americans will also benefit from the new law.

Starting next year, people age 70½ or older can make a one-time gift up to $50,000 from a taxable IRA to a popular type of trust. The gift is not deductible, but counts toward an individual's RMDs and can prevent the donor from being advanced to a higher tax bracket when taking distributions. 

Those with a 529 college savings plan will now be able to roll over unused money into a Roth IRA whose beneficiary is that college student, but only after 15 years. The rollover would still be subject to annual Roth contribution limits, as well as to a total lifetime limit of $35,000. 

Also, starting next year, those 70½ and older can use trusts in tandem with charitable can make a one-time qualified charitable distribution (QCD) – the definition of which has been expanded under the new rule – of up to $50,000, adjusted annually for inflation. Previously, distributions had to go to charities with a 501(c)(3) status. This kind of a distribution, which must be made from a taxable IRA by year’s end, counts toward a taxpayer's annual RMD.

Many Americans do not have retirement savings, according to Census Bureau data quoted by Accounting Today. Only 34.5 percent of working individuals born between 1956 and 2005 have a 401(k), 403(b) or similar plan; 18.2 percent of them have a Roth plan or a Keogh plan; and 13.5 percent have a pension. Almost half of private-sector employees from ages 18 to 64, or 57 million people, do not have the option to save for retirement at work, an AARP study found.

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