Taxes 2023: 5 Implications of the SECURE Act 2.0 You Need To Know About

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The SECURE Act 2.0 passed in March 2022, and although many of the changes in the legislation will be rolling out over time, there is one benefit to taxpayers for 2023, said Eric Bronnenkant, CPA, CFP, head of tax at Betterment. This change is the increase in age for taking the required minimum distribution from retirement savings accounts — it has been bumped up from 72 in 2022 to 73 in 2023.

Because required minimum distributions (RMDs) increase your taxable income — and therefore, your income taxes for the year — delaying your RMD for an extra year means one less year of having to pay higher taxes. It’s important to note that this change will affect filers for the 2023 tax year, so the 2022 tax year will be unaffected.

More Changes That Impact Your Taxes

“Overall, the legislative impact ranges from neutral to positive for most taxpayers in the 2023 tax year (changes for the 2022 tax year were relatively minor),” Bronnenkant said.

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He outlined the following changes as being “significantly” positive for taxpayers.

Increase in Tax Credits for Small Businesses Starting a 401(k) Plan

According to ADP, “Currently, employers with less than 100 employees may be eligible for a three-year start-up tax credit of up to 50% of administrative costs, with an annual limit of $5,000. SECURE 2.0 increases this credit to 100% of qualified start-up costs for employers with up to 50 employees. An additional credit of up to $1,000 per employee for eligible employer contributions may apply to employers with up to 50 employees, but phases out from 51 to 100 employees.”

The increased tax credit can be beneficial for small-business owners.

RMD Penalty Failure Decreased

Previously, if you failed to take your RMD by the end of the year, the IRS enacted a 50% penalty on the amount you didn’t withdraw. Under the new law, this penalty drops to 25%, or 10% if you correct the mistake in a timely fashion. This can mean big savings for taxpayers who fail to meet the deadline.

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Qualified Charitable Distributions Are Allowed for Charitable Trusts

According to Fidelity, “A qualified charitable distribution (QCD) allows individuals who are 70½ years old or older to donate up to $100,000 total to one or more charities directly from a taxable IRA instead of taking their required minimum distributions. As a result, donors may avoid being pushed into higher income tax brackets and prevent phaseouts of other tax deductions, though there are some other limitations.”

The SECURE Act 2.0 allows these distributions to go to charitable remainder trusts (CRTs) or charitable gift annuities.

Roth SEP Accounts and Roth Simple IRAs Are Now Permitted

Previously, SEPs and Simple IRAs did not offer a Roth contribution option. Now, both accounts allow for contributions with taxed dollars, so you do not have to pay taxes on withdrawals. This can benefit anyone who is in a lower tax bracket now than they expect to be in retirement.

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