Key Tax Provisions
Increase in Age for Required Beginning Date for Mandatory Distributions (Required Minimum Distributions) from Retirement Plans
Under the Act, the current required age component used to determine required minimum distributions (RMDs) referred to as the “applicable age,” increases from age 72 to: (A) age 73 starting on Jan. 1, 2023 (for individuals who attain age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033); and (B) age 75 starting on Jan. 1, 2033 (for individuals who attain age 74 after Dec. 31, 2032).
This provision applies to distributions required to be made after Dec. 31, 2022, with respect to individuals who attain age 72 after that date.
Higher Retirement Plan Catch-up Limit to Apply at Age 60, 61, 62, and 63
Starting in 2025, the Act increases the current catch-up limit (for defined contribution plan participants who are age 50 or older and want to make additional pre-tax elective deferrals, to the greater of $10,000 ($5,000 for SIMPLE plans) or 50% more than the regular catch-up amount in 2024 (2025 for SIMPLE plans) for individuals who attain ages 60, 61, 62 and 63.
This provision applies to tax years beginning after Dec. 31, 2024.
Penalty-Free Withdrawals from Retirement Plans For Certain Emergency Expenses
The Act provides an additional exception from the 10% penalty tax on distributions from tax-preferred retirement accounts for certain distributions used for unforeseeable or immediate financial needs relating to personal or family emergency expenses. Only one distribution of up to $1,000, is allowed per year, and a taxpayer has the option to repay the distribution within three years. No further emergency distributions are permissible during the three-year repayment period unless repayment occurs.
The provision is effective for distributions made after Dec. 31, 2023.
Tax-free Rollovers From 529 Accounts to Roth IRAs Permitted
The Act permits beneficiaries of 529 college savings accounts to make direct trustee-to-trustee rollovers from a 529 account in their name to their Roth IRA without tax or penalty. This provides an option for 529 accounts that have a balance remaining after the beneficiary’s education is complete.
The 529 account must have been open for more than 15 years. The rollover can’t exceed the aggregate amount contributed to the account (and earnings thereon) more than five years before the rollover.
Aggregate rollovers under the provision can’t exceed $35,000 over the beneficiary’s lifetime. Rollovers are subject to the Roth IRA annual contribution limits, but the limit based on the taxpayer’s adjusted gross income is waived.
The amendments are effective for distributions after Dec. 31, 2023.
Optional Treatment of Employer Matching or Nonelective Contributions as Roth Contributions
The Act allows a Code Sec. 401(a) qualified plan, a Code Sec. 403(b) plan, or a governmental Code Sec. 457(b) plan to permit a participant to designate some or all matching contributions and nonelective contributions to the plan as designated Roth contributions.
This provision applies to contributions made after the date of the enactment of the Act.
Other Miscellaneous Provisions: