Dear Clients & Friends,
This article might be a little dry compared to our usual earth shattering, breath
taking, epically inspiring weekend reading. But it is important, and we’ve
already fielded quite a few questions about it. So, here’s the breakdown:
The “Securing a Strong Retirement Act of 2022” has passed almost
unanimously in the House. A similar bill, the “Enhancing American Retirement
Now Act”, has been drafted in the Senate; however, it will have to wait until
Congress is back in session in November for further consideration. If the
Senate passes its bill, the House and the Senate will need to reconcile the two
bills and vote.
Here is a summary:
Contributions
House | Senate |
Starting in 2024, the $1,000 IRA catch-up contribution limit for individuals aged 50 and older will be indexed for inflation. | Starting in 2023, the $1,000 IRA catch-up contribution limit for individuals aged 50 and older will be indexed for inflation. |
For workplace retirement plans such as a 401(k): starting in 2024, the catch-up contribution limit will be increased to $10,000 (indexed for inflation) for eligible participants aged 62 to 64. | For workplace retirement plans such as a 401(k): starting in 2025, the catch-up contribution limit will be increased to $10,000 (indexed for inflation) for eligible participants aged 60 to 63. |
For SIMPLE plans: starting in 2024, the catch-up contribution limit will be increased to $5,000 (indexed for inflation) for eligible participants aged 62 to 64. | For SIMPLE plans: starting in 2025, the catch-up contribution limit will be increased to $5,000 (indexed for inflation) for eligible participants aged 60 to 63. |
Starting in 2023, an employer will be able to make matching contributions to a defined contribution plan (such as a 401(k)) on behalf of an employee who is making qualified student loan payments. | Starting in 2024, an employer will be able to make matching contributions to a defined contribution plan (such as a 401(k)) on behalf of an employee who is making qualified student loan payments. |
Distributions
House | Senate |
The current starting age of 72 for required minimum distributions (RMDs) from retirement accounts will be increased to age 73 starting in 2023, age 74 starting in 2030, and age 75 starting in 2033. | The current starting age of 72 for required minimum distributions (RMDs) from retirement accounts will be increased to age 75 for 2032 and beyond. |
Starting in 2023, the penalty for failing to make an RMD will be reduced from 50% to 25%. In addition, the penalty will be reduced to 10% if the taxpayer corrects an RMD shortfall and submits a corrected tax return prior to either (a) when the IRS demands payment, or (b) the end of the second taxable year after the taxable year in which the penalty is imposed. | Starting in 2023, the penalty for failing to make an RMD will be reduced from 50% to 25%. In addition, the penalty will be reduced to 10% if the taxpayer corrects an RMD shortfall and submits a corrected tax return prior to either (a) when the IRS demands payment, or (b) the end of the second taxable year after the taxable year in which the penalty is imposed. |
Qualified charitable distributions (QCDs) for individuals aged 70½ and older will be expanded to allow a one-time election to be made for a QCD of up to $50,000 (to be adjusted for inflation) to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. | Qualified charitable distributions (QCDs) for individuals aged 70½ and older will be expanded to allow a one-time election to be made for a QCD of up to $50,000 (to be adjusted for inflation) to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity. |
An exception to the penalty for early distributions from a retirement plan would be available for up to $10,000 if distributions were made to a domestic abuse victim after the date of enactment. | An exception to the penalty for early distributions from a retirement plan would be available for up to $10,000 if distributions were made to a domestic abuse victim after the date of enactment. |
Other
House | Senate |
Roth Style SIMPLE and SEP IRAs would be allowed starting in 2023. | SIMPLE and SEP Roth IRAs would be allowed starting in 2024. |
If a retirement plan permits it, an employee would be able to elect to have employer matching contributions treated as Roth contributions, starting with contributions made after the date of enactment. | If a retirement plan permits it, an employee would be able to elect to have employer matching contributions treated as Roth contributions, starting with contributions made in 2023. |
Hopefully this gives a bit of insight into what’s been going on behind the
scenes in Congress. We will update our family of clientele as more progress is
made.
Have a lovely weekend, everyone. If you’re a sports fan, you won’t be
surprised if I sign off by saying- Go Birds! Go Phils!!
--Matthew
*Data provided by Broadridge Financial Solutions