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Consolidated Appropriations Act of 2023

President Biden signed the $1.7 trillion Consolidated Appropriations Act of 2023 late last week. This bill averted a government shutdown and funds the federal government’s budget through fiscal year 2023 ending September 30, 2023. An omnibus spending bill is a combination of appropriations bills allocating funds for each of the different subsets of the government. This latest spending bill contains numerous provisions directly impacting healthcare, financial planning, aid to foreign countries, and even a ban on TikTok on government devices. The bill contains more than 4,000 pages with several key components.

SECURE 2.0 Act

The omnibus bill does include the long-awaited SECURE 2.0 Act of 2022 which builds upon the provisions of the original SECURE Act of 2019.

Planning Ideas You Can Do Now
Based on the recent passing of the spending bill, a few planning ideas should be considered:

• Increasing retirement contributions
• Starting a 529 Plan for child or grandchild
• Evaluating ROTH conversion capacity in years of RMD deferral

Increased Retirement Savings 

Catch-up contributions for participants aged 50 or older is currently limited to $7,500 for most retirement plans, but the SECURE 2.0 Act adds a second increase for participants aged 60, 61, 62, or 63 allowing a catch-up contribution of $10,000. One interesting note is for employees, whose wages exceed $145,000, must make any catch-up contributions on a ROTH basis. The ROTH treatment of catch-up contributions is mandatory for any plan that makes catch-up contributions available.

Effective for plan years beginning after December 31, 2023, the SECURE Act 2.0 allows sponsors of individual account plans (such as 401(k) or 403(b) plans) to create “emergency savings accounts” that permit non-highly compensated employees (making more than $150,000 in 2023) to make Roth after-tax contributions to a special savings account within the retirement plan. Balances in an emergency savings account must be eligible for distribution at least once per month, and contributions cannot be made to an emergency savings account that would cause the balance to exceed $2,500, or a lesser amount established by the plan sponsor. Importantly, an employee’s contributions to the emergency savings account must be eligible for matching contributions at the same matching rate established under the plan for elective deferrals.

For plan years beginning after 2023, the bill provides that employers may make payments to qualified plans matching qualified student loan payments by employees. This provision would allow employers to offer matching contributions for employees not currently deferring due to student loan burdens.

529 Plan to ROTH IRA Conversion 
Section 126 of the bill includes a specific provision allowing tax- and penalty-free rollovers from 529 plans to ROTH IRA accounts starting in 2024. The new rule allows beneficiaries of 529 plans to roll over up to $35,000 over the course of their lifetime from any 529 account in their name to a ROTH IRA. Any amount of money rolled over from a 529 plan into a ROTH IRA account will be subject to the ROTH IRA annual contribution limits. The contribution limit for 2024 is currently scheduled to be $6,500, with an extra $1,000 catch-up contribution allowed for individuals over the age of 50. The 529 plan must have existed for at least 15 years prior to any funds being rolled over into a ROTH IRA. Changing 529 plan beneficiaries could likely restart the 15-year clock. Rollover of any contributions that were made in the last five years will be disallowed.

Increased Required Minimum Distributions (RMD) Age
The original SECURE Act raised the age for RMDs from 70 ½ to 72, and SECURE 2.0 pushes this out further to age 73 for individuals born between 1951 to 1959 and age 75 for those born in 1960 or later.

Qualified charitable distributions (QCD) are a great way to satisfy RMD requirements and allow direct contributions to charity after age 70-1/2. Under the new law, a one-time QCD transfer of up to $50,000 would be allowed through a charitable gift annuity or charitable remainder trust.

Automatically Enroll Retirement Participants
One of the most applicable provisions of the SECURE 2.0 Act requires retirement plans beginning after 2023 to automatically enroll participants. Employees would be enrolled in their company’s retirement plan offerings by default at a deferral rate of not less than 3% to a maximum of 10%.  However, they may opt out.

Penalty Free Withdrawals for Disaster 
The SECURE 2.0 Act would make permanent the ability of a taxpayer to make an early withdrawal without incurring a 10-percent penalty as result of a federally declared disaster. Such a withdrawal will be allowed if made within 180 days of the disaster, if the taxpayer’s principal place of residence is within the declared disaster area, and if the taxpayer has sustained an economic loss because of the disaster.

Continued IRS Scrutiny on Conservation Easements
Conservation easements face strict scrutiny prohibiting a charitable deduction if the value of the easement exceeds 250% of the sum of any owner’s basis. This prohibition would apply to contributions made after the date of enactment.

Health and Medical Updates
The Consolidated Appropriations Act of 2023 includes the Health Extenders, Improving Access to Medicare, Medicaid and CHIP, and Strengthening Public Health Act of 2022. The Act includes a one-year extension of the COVID-era safe harbor applicable to HSAs to retain treatment as high-deductible health plans despite the lack of a deductible imposed on the provision of telehealth services. This provision also funds key healthcare agencies including provisions for pregnant and breastfeeding workers, and funds mental health, substance use disorder, and crisis response services.

As always, we are here to help. If you have any questions about how the Consolidated Appropriations Act of 2023 could affect you, please reach out to our Acumen team.

This report is provided as a courtesy for informational purposes only. The information has been obtained from sources we believe to be reliable; however no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.   It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

More information can be found at https://www.kitces.com/blog/secure-act-2-omnibus-2022-hr-2954-rmd-75-529-roth-rollover-increase-qcd-student-loan-match/

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