IRS Contribution Changes for 2023 and SECURE Act 2.0 of 2022
Ryan Taylor, Partner
Now that the calendar has turned over to 2023, I thought it would be beneficial to update you on IRS changes for 401(k) and IRA contributions.
- 401(k) contribution limit increases from $20,500 to $22,500
- 401(k) catch-up contributions for employees age 50 and over increases from $6,500 to $7,500
- Annual IRA contribution limit increases from $6,000 to $6,500
- Annual IRA catch-up contribution limit remains at $1,000
- Income phase-out ranges for IRA contributions has increased depending on filing status
On December 29, 2022, President Joe Biden signed into law the Consolidated Appropriations Act of 2023, which contains within it the SECURE 2.0 Act of 2022. The SECURE 2.0 Act of 2022 includes changes to retirement plans and Individual Retirement Arrangements (IRAs) that may be of interest to you. Listed below are some of the changes.
Auto Enrollment for 401(k) and 403(b) Plans
For plan years beginning on or after January 2, 2025, auto enrollment is required for newly established 401(k) and 403(b) plans with some exceptions. The default contribution rate must be at least 3%, but not more than 10%, plus an automatic contribution increase of 1% each year up to a maximum of at least 10 percent, but not more than 15%.
Required Minimum Distributions Age Increase
Effective January 1, 2023, the required minimum distribution (RMD) age will increase from age 72 to age 73 for individuals who will be attaining age 72 on or after January 1, 2023. For individuals who will attain age 74 on or after January 1, 2033, the RMD age will increase to 75.
Matching on Student Loan Payments
Effective for plan years beginning on or after January 1, 2024, SIMPLE IRAs, 401(k) and 403(b) retirement plans, as well as governmental 457(b) plans allow employers to make matching contributions to “qualified student loan repayments”, which would be considered elective contributions for this purpose.
Coverage for Part-Time Workers
Effective for plan years beginning on or after January 1, 2025, 401(k) and 403(b) plans that are subject to ERISA will need to maintain dual eligibility where an employee may become eligible for the plan after either completing one year of service in which they work 1,000 hours or 2 consecutive years in which they work at least 500 hours each year. Service for 12-month periods beginning prior to January 1, 2023, will be excluded.
RMD Penalty Reduced
Effective January 1, 2023, the penalty for failure to take an RMD drops from 50 percent to 25 percent. Also, if a failure to take an RMD from an IRA is corrected in a timely manner as defined in SECURE 2.0, the penalty is dropped from 25 percent to 10 percent.
Please be on the lookout for additional changes that are part of the SECURE 2.0 Act of 2022 that your retirement benefit provide may send out. If you have questions regarding your retirement plan that you cannot get answers from your benefit provider from, don’t hesitate to reach out to us and we will see if we can provide answers for you.