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New Law Brings Many Retirement Plan Changes

The Consolidated Appropriations Act of 2023, enacted on December 29, 2022, includes the Secure 2.0 Act, which contains many provisions designed to expand retirement coverage, increase retirement savings and clarify retirement rules. These will affect employees and employers going forward and should be considered in planning for retirement.

Increased RMD Age

Of significant interest is the increased age for required minimum distributions (RMD’s). Prior changes raised the age from 70 ½ to 72. The new law increases the RMD beginning age to 73 for those born from 1951 – 1959 and to age 75 for those born in 1960 or after. While the RMD beginning age has increased, account owners will still be allowed to take Qualified Charitable Distributions (distributing retirement plan money directly to a qualified charity) at age 70 ½. Also, the penalty for a missed RMD has been reduced from the current 50% down to 25%.

A later beginning date for RMD’s will allow taxpayers additional years for traditional retirement accounts to continue growing on a tax-free basis. It also means that participants have more time to convert traditional accounts to Roth accounts. In addition, the new Act eliminates RMD’s for Roth 401(k)’s and Roth 403(b) accounts beginning in 2024, so that Roth qualified plan accounts will have the same RMD treatment that Roth IRA’s already have. For those retirees who don’t need plan distributions for living expenses, a Roth conversion may be an option. In planning, however, keep in mind that most non-spouse beneficiaries of both traditional and Roth accounts are subject to a ten-year distribution rule for inherited IRAs.

529 to Roth IRA Transfer

Beginning in 2024, taxpayers with 529 plan balances will be able to transfer those balances to Roth IRAs, although this provision comes with many restrictions. First and foremost, the Roth IRA account must be in the name of the 529 plan beneficiary, and the 529 plan must have been maintained for 15 years or longer. Contributions to the 529 plan made within the previous 5 years (and the earnings on those contributions) are not eligible to be transferred. The lifetime maximum which can be transferred is $35,000 and the annual limit for a transfer is that year’s IRA contribution limit less any IRA contribution already made by the taxpayer in that year. Because the annual transfer amount is subject to the IRA limit, the beneficiary must have compensation. These transfers are not subject to the income limitations which prohibit high income taxpayers from contributing directly to a Roth IRA, but it is not yet clear whether a change of the 529 plan beneficiary re-starts the 15-year period.

As an example, Dr. Smith is the owner of a 529 plan for his daughter Jane, age 25. Dr. Smith opened the account when Jane was an infant. The account had more than was needed for Jane’s education, and Jane has no further plans for graduate degrees or furthering her education. Jane has no siblings and currently has no children. Let’s assume the 2024 IRA contribution limit remains at the current limit of $6,500. Dr. Smith can transfer $6,500 in 2024 to Jane’s Roth IRA account assuming Jane has not made any IRA contributions in 2024 and Jane has compensation income. He can continue to transfer $6,500 per year (or the indexed IRA contribution limit amount) into Jane’s Roth account annually until he has transferred $35,000 into the account from the 529 plan. Jane’s Roth IRA will grow on a tax-deferred basis and she will be able to take tax-free distributions from the account after age 59 ½.

Catch-up Contributions for high income earners

Beginning in 2024, taxpayers whose wages exceeded $145,000 in the previous year can only make catch-up contributions into a 401(k), 403(b) or a governmental 457(b) Roth account. This means the catch-up contribution will be made with after-tax dollars. This provision may not apply if there has been a job change as the $145,000 applies to the employer sponsoring the plan per the text of the bill. This does not apply to IRA catch-up contributions, including SIMPLE IRA’s.

The new law will also allow employer non-forfeitable matching contributions and non-elective contributions to be made to Roth accounts, effective immediately.  This does not apply to profit sharing contributions. Previously, only an employee’s salary deferral contribution could be made to a Roth account. Beginning in 2024 catch-up contribution amounts will be increased for inflation for both IRA’s and qualified plan accounts. SIMPLE and SEP account owners can now (beginning in 2023) make their contributions to Roth accounts as well.

Let’s assume Dr. Jones, age 55, works for ABC Medical Practice in 2023 and makes $300,000 in W-2 income. In 2024, Dr. Jones wants to maximize her salary deferral into ABC’s 401(k) plan, including a catch-up contribution. If we assume contribution limits remain the same, Dr. Jones can make her $22,500 salary deferral into a traditional 401(k) plan in 2024 but must add the $7,500 catch-up contribution to her Roth 401(k) account. Her $22,500 contribution will not be subject to income tax but the $7,500 catch-up will be taxable income. However, if Dr. Jones changes jobs and works for XYZ Hospital in 2024, because she did not make more than $145,000 at XYZ Hospital in the previous year, she can presumably make both the $22,500 contribution and the $7,500 catch-up to the traditional 401(k) plan. Dr, Jones will need to consider the tax diversification of her wealth in determining whether she is better off making part of her contribution to her Roth account. Because Dr. Jones can now receive her 3% match from her current employer into her Roth account, she could potentially add $39,000 to her Roth plan in 2024, significantly increasing her tax diversification.

Beginning in 2025, there will be increased catch-up contributions for those turning 60-63 during the year. This will apply to 401(k) and similar plans as well as to SIMPLE IRA’s. For qualified plans, such as a 401(k) and 403(b), the additional limit will be 150% of whatever the regular catch-up amount is for a given year or $10,000—whichever is greater. For SIMPLE plans, the additional limit will be 150% of whatever the regular catch-up amount is for a given year or $5,000—whichever is greater. In addition, starting in 2024, all catch-up contribution limits will be indexed to inflation, including IRA catch-up contributions. 

Employer Provisions

The new law provides that employee student loan payments will be treated as elective deferrals for employer matching contributions beginning in 2024. Thus, employers can match payments that plan participants make to their student loans based on employee certification of student loan payments. Vesting and matching schedules must be the same as if the loan payment were an employee deferral into the plan. The premise behind this is that employees who can’t make 401(k) contributions because they are making student loan payments won’t lose out on an employer match.

In addition, there are new Starter 401(k) plans for businesses that don’t currently offer retirement plans effective in 2024. These Starter plans would include automatic enrollment and contribution limits equal to IRA contribution limits but no employer contribution.


While this article in no way addresses all the provisions of the 1,000-plus page Consolidated Appropriations Act of 2023, the authors have highlighted some changes that are most likely to affect individuals and employers. When planning for retirement and contemplating how these law changes will impact one’s retirement accounts, it is essential to have an understanding of how your current accumulated wealth will be distributed and taxed during retirement years. A team of experienced advisors can provide valuable guidance to help you build tax-diversified wealth for retirement and achieve your long-term financial goals.

Be sure to read the other articles featured in our February 2023 newsletter: