The Consolidated Appropriations Act, 2023, P.L. 117-328, enacted on Dec. 29 included (as its Division T) the Secure 2.0 Act, which contains several retirement and tax provisions. The Secure 2.0 provisions mostly focus on expanding coverage, increasing retirement savings, and simplifying and clarifying retirement plan rules, but there are other changes included as well.

Many tax items that have been proposed or discussed recently were not included in the act, including extensions of various expired or expiring provisions.

Expanded automatic enrollment in retirement plans

The act creates a new Sec. 414A, under which all Sec. 401(k) and 403(b) plans will have to provide for automatic enrollment of eligible employees (i.e., they must be an eligible automatic contribution arrangement under Sec. 414(w)(3)). Such plans must also meet three requirements:

1. They must allow permissible withdrawals (defined in Sec. 414(w)(2)) within 90 days after the first elective contribution.
2. They must provide for automatic contributions, starting with a minimum contribution percentage of between 3% and 10% in the participant’s first year of participation, unless the participant specifically elects out. At the end of each year of participation, the contribution percentage must automatically increase by 1 percentage point (unless the participant elects otherwise), to at least 10%, but not more than 15%. For plan years ending before Jan. 1, 2025, the maximum percentage is 10% for any arrangement that is not a safe-harbor plan under Sec. 401(k)(12) or 401(k)(13).
3. Automatically contributed amounts must be invested in accordance with the requirements of Labor Department regulation 29 C.F.R. Section 2550.404c-5, if the participant makes no investment decision.

Plans established before the act’s enactment date are exempt from the automatic enrollment provision. So are SIMPLE 401(k) plans, Sec. 414(d) governmental plans, and Sec. 414(e) church plans. Any plan maintained by an employer that has been in existence for less than three years and any plan maintained by an employer with 10 or fewer employees is also exempt.

For multiemployer plans, the automatic enrollment requirements are applied separately to each employer.

The automatic enrollment provision is effective for plan years beginning after Dec. 31, 2024.

Modified credit for small-employer pension plan startup costs

The act provides an increase to the Sec. 45E credit for all or a portion of employer contributions to small employer pensions for the first five employer tax years beginning with the one that includes the plan’s start date. The amount of the small-employer pension credit would be increased by the applicable percentage of employer contributions on behalf of employees, up to a per-employee cap of $1,000. The applicable percentage is 100% in the first and second tax years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. No credit is available in the sixth and subsequent years.

Employers with 50 or fewer employees are eligible for 100% of the credit, which then phases out for employers with between 51 and 100 employees. No credit is allowed for employer contributions on behalf of an employee who makes more than $100,000 (adjusted for inflation after 2023).

Saver’s match

The act adds a new Sec. 6433 that provides a matching contribution, up to $2,000, for any eligible individual who makes a qualified retirement savings contribution for a tax year, which the individual will claim as a tax credit. The match will equal 50% of the individual’s contribution for the tax year but will phase out for taxpayers with modified adjusted gross income above $41,000, for married taxpayers filing jointly; $30,750, for taxpayers filing as head of household; and $20,500, for single taxpayers (adjusted for inflation after 2027). Eligible individuals are anyone age 18 or older who is not a dependent or full-time student and who is not a nonresident alien.

The saver’s match is effective for tax years beginning after Dec. 31, 2026.

Increase in beginning age for RMDs

The act increases the applicable age at which beneficiaries must begin taking required minimum distributions (RMDs) from qualified retirement plans and annuity contracts as follows:

• For an individual who attains age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033, the applicable age is 73.
• For an individual who attains age 74 after Dec. 31, 2032, the applicable age is 75.

This increase applies to RMDs required to be made after Dec. 31, 2022, by taxpayers who reach age 72 after that date.

IRA catch-up limit indexed for inflation

Defined contribution retirement plans can allow participants who are age 50 or older to make additional pretax elective deferrals, which are referred to as catch-up contributions. The act indexes the $1,000 catch-up contribution limit in Sec. 219(b)(5) for inflation for years after 2023.

Higher catch-up limit for older individuals

The act increases the current catch-up limit 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, effective for tax years beginning after Dec. 31, 2024. The dollar amounts are indexed for inflation beginning in 2026.