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What Does the Consolidated Appropriations Act of 2022 Mean for Me?

Jan 25, 2023

On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, which includes numerous provisions aimed at retirement plan reform as part of the long-awaited SECURE 2.0 Act of 2022. The legislation consists of valuable benefits for both retirement plan sponsors and their employees, intending to make it more attractive for employers to offer retirement plans and improve employee retirement outcomes.

The Act also builds upon various investment options for plan participants, streamlines plan administration for plan fiduciaries, and makes significant changes to required minimum distributions to help retirees with plan selections aimed at making better use of their retirement savings. Among the key provisions of the bill are the following:

  • Automatic enrollment and small incentives: One of the most applicable new provisions of the SECURE 2.0 Act of 2022 requires employers who start new retirement plans to automatically enroll employees at a contribution rate of at least 3%, with a 1% each year increase (up to a maximum contribution of 10%), beginning in 2025. New companies in business for less than three years and businesses with ten or fewer workers are excluded from this requirement.

Under this provision, automatic enrollment would be required, with exceptions provided to businesses with ten or fewer employees, those that have existed for less than three years, church plans, and government plans.

  • Required minimum distributions (RMDs): Under current law, plan participants must take required minimum distributions (RMDs) at age 72. With the new law, the age requirement to begin taking RMDs will increase from 72 to 73 in 2023, then to 75 in 2033. Additionally, the penalty for not taking an RMD is reduced from 50% to 25% and, in some cases, to 10%. Beginning in 2024, the RMD requirement for Roth 401(k) accounts during a participant’s lifetime will be eliminated entirely.
  • Withdrawals: The SECURE 2.0 Act permanently allows a taxpayer to make an early withdrawal without incurring a 10% penalty due to a federally declared disaster. Such withdrawals will be allowed if made within 180 days of the disaster if the taxpayer’s principal residence is within the declared disaster area and if the taxpayer has sustained an economic loss due to the disaster. This withdrawal would be a blanket allowance in the case of any declared disaster and not subject to Congress passing specific disaster relief bills.

Additional penalty-free withdrawals are allowed after 2023 for the following:

    • Penalty-free early withdrawals by victims of domestic abuse, up to the lesser of $10,000 or 50% of the current value of the accounts.
    • A penalty-free early withdrawal by an individual diagnosed with a terminal illness (within 84 months after a physician certifies the diagnosis).
    • A penalty-free withdrawal of up to $1,000 from retirement savings for individuals under age 59½ due to a personal financial emergency.
    • Public safety officers who reach age 50 or have 25 years of service will be allowed to make an early withdrawal after age 50. Private-sector firefighters and certain corrections officers will be treated as public safety officers for this exception.

The legislation also limits the amount of time during which a penalty-free distribution to a participant in the event of a birth or adoption may be repaid. Under the new law, the amount must be repaid within three years and will generally be effective for distributions after the date of enactment.

  • Catch-up limits and contributions: Currently, the annual amount that can be contributed to a retirement plan is limited, with the limitation amount subject to annual adjustments for inflation. Participants aged 50 and older can contribute an extra $7,500 annually into their 401(k) account. This amount will increase to $10,000 annually starting in tax year 2025 for participants ages 60 to 63.

Additionally, catch-up provisions will be subject to inflation adjustment. Effective January 1, 2024, all catch-up contributions for participants earning more than $145,000 will be subject to Roth rules rather than only where allowed by the plan.

  • SIMPLE plans: The SECURE 2.0 Act of 2022 allows employers to make nonelective contributions of a uniform percentage to a SIMPLE IRA or SIMPLE 401(k) plan up to 10 percent of the employee’s compensation, with an inflation-adjusted cap of $5,000. Contribution amounts to SIMPLE IRA and 401(k) will also increase in the case of certain smaller employers.
  • Small Employers: Currently, for the first three years that a small employer establishes an eligible plan, it can claim a credit of 50% of start-up costs. Beginning in 2023, the credit for start-up costs is raised to 100% for employers with 50 or fewer employees, with a cap of $1,000 per employee. Additionally, the time to claim the credit is extended to five years. The credit amount phases out for employers with 51 to 100 employees, dropping incrementally to 25% in the fifth year.
  • Student loan debt: The legislation provides that, beginning in 2024, employers can contribute to their company retirement plan on behalf of employees who are paying student loans instead of saving for retirement. These payments can be treated as retirement contributions to qualify for matching contributions in a workplace retirement account. To qualify, the employees must be otherwise eligible for matching contributions by an employer. In addition, the employer must make matching contributions for student loan payments at the same rate as those for elective deferrals.
  • Saver’s match: Beginning with tax year 2027, low to middle-income employees will be eligible for a federal matching contribution of up to $2,000 per year that must be deposited into their retirement savings account as a saver’s credit. The match replaces the current Saver’s Credit, simplifying it from its existing three-tier structure based on income amounts to a unified 50 percent credit amount, with a phaseout for higher incomes.
  • Military Families: The Act provides a credit for small employers who make military spouses available immediately to participate in the employer’s retirement plan. The credit is effective for tax years beginning in 2023.
  • Annuities: The legislation eliminates an actuarial test in the regulations relating to required minimum distributions that limit the use of certain annuities in defined contribution plans and individual retirement accounts. The modification makes it possible for participants to make elections to use annuities that provide only a small financial benefit but important guarantees.
Other tax provisions

While the vast majority of the tax-related provisions of the Consolidated Appropriations Act of 2023 relate to retirement and income deferral, two unrelated provisions were also included in the omnibus package.

Conservation easements

The SECURE 2.0 Act includes a prohibition on partnerships treating a contribution as a charitable conservation easement if the easement’s value exceeds 250% of the sum of each partner’s basis in the partnership allocable to the property upon which the easement is placed. The prohibition applies to contributions made after the date of enactment.


The Act includes a one-year extension, through 2023, of the COVID-era safe harbor applicable to HSAs to retain treatment as a high-deductible health plan despite the lack of a deductible imposed on the provision of telehealth services.

As with any significant change that affects taxes, questions will continue to arise. Though many of the SECURE 2.0 Act provisions won’t be effective for a few years, now is the time for you to prepare for these changes. Contact your CRI tax advisor with any questions you may have. We’re here to help navigate the new provisions of this legislation and provide answers for any situation.

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