Understanding the SECURE Act 2.0: Tax Benefits and Changes for 2023

The SECURE Act 2.0, passed in March 2022, changes taxes. One significant change is the age increase for taking the required minimum distribution from retirement savings accounts. 

It has been bumped up from 72 in 2022 to 73 in 2023. This means one less year of having to pay higher taxes. However, this change will only affect filers for the 2023 tax year, and the 2022 tax year will remain unaffected.

Apart from this, other changes are significantly positive for taxpayers. One of these changes is the increase in tax credits for small businesses starting a 401(k) plan. The SECURE Act 2.0 increases the credit to 100% of qualified start-up costs for employers with up to 50 employees. This can be beneficial for small-business owners.

Another change that can save taxpayers big money is the decrease in the RMD penalty failure. Previously, if the taxpayer failed to take the RMD by the end of the year, the IRS enacted a 50% penalty on the amount not withdrawn. However, under the new law, this penalty drops to 25%, or 10%, if the taxpayer corrects the mistake promptly.

The SECURE Act 2.0 also allows qualified charitable distributions to go to charitable remainder trusts or charitable gift annuities. This can benefit donors who are 70½ years old or older, as they can donate up to $100,000 to one or more charities directly from a taxable IRA instead of taking their required minimum distributions.

Lastly, the SECURE Act 2.0 permits Roth SEP accounts and Roth Simple IRAs, which previously did not offer a Roth contribution option. Both accounts allow for contributions with taxed dollars, so the taxpayer does not have to pay taxes on withdrawals. This can benefit anyone in a lower tax bracket now than they expect to be in retirement.

Overall, the legislative impact of the SECURE Act 2.0 ranges from neutral to positive for most taxpayers in the 2023 tax year.