Both the “Inflation Reduction Act” and “Secure Act 2.0” were passed in 2022 and include several tax law changes for 2023 and beyond. Below is a summary of the provisions that are most likely to be impactful for our clients. Please be sure to reach out if you have any questions.
Required Minimum Distributions (RMDs) beginning age is increased to age 73 now, and age 75 in 2033
Once the RMD age is reached, retirees lose a lot of control over the amount of taxable income they report. By delaying the age, there is a greater opportunity to plan for Roth conversions and to take advantage of the zero percent capital gains tax bracket.
Summarizing the slew of recent changes to the RMD beginning age:
Before 2020 RMDs began at 70 ½
2020 RMDs waived
2021-2022 RMDs began at 72
2023 - 2032 RMDs begin at age 73
2033 & after RMDs will begin at age 75
Energy Efficient Home Improvement Credit
This credit is now much more beneficial, please keep track of your expenses. It may also be worth your while to space your expenditures across tax years to claim the credit multiple years in a row rather than being limited to just one years’ credit for larger projects.
Previously, the energy-efficient credit was a $500-lifetime credit; starting in 2023, the credit will become an annual limit rather than the lifetime limit. The credit is non-refundable, and there are no carryovers for unused credits.
The credit is 30% of the cost of qualified expenditures, with limits as noted below:
- Maximum annual credit of $1,200 combining the below
- Exterior Doors - $250/door & $500/total
- Exterior Windows & Skylights $600
- Insulation & Air Sealing $1,200
- Home Energy Audit $150
- Central A/C $600
- Gas Propane or Oil Water Heater $600
- Gas, Propane, or Oil Furnace and Hot Water Boiler $600
- Panelboards, Circuits, etc. Related to Building Envelope $600
- Separate maximum annual credit of $2,000 (max of $3,200 when combined with above)
- Electric or Gas Heat Pump Water Heaters
- Electric or Gas Heat Pumps
- Biomass Stoves
- Biomass Boilers
Residential Clean Energy Property Credit: “The Solar Credit”
There is no dollar limitation for this credit, and the unused credit carries forward. The percentages are as follows:
30% 2022 – 2032
- Solar Panels
- Solar Water Heater
- Geothermal Heat Pump
- Battery Storage
- Fuel Cell Property
- Wind Turbines
Clean Vehicle Credit:
A credit of up to $7,500 for new Electric Vehicles, eliminating the quantity per manufacturer limitation and applying to years 2023 – 2032. There are income limits to receive the credit, you can use your current or prior year adjusted gross income (AGI):
MSRP is limited to $80K for Vans, SUV & Pickups, and $55K for Sedans. All vehicles must be assembled in the U.S., among other rules.
Increase in IRA catch-up contributions
In 2024, IRA catch-up contributions will automatically be adjusted for inflation. In 2025, catch-up contributions for employees aged 60-63 will be increased to $10,000 or 150% of the regular catch-up amount.
- SIMPLE and SEP Roth IRAs are now allowable
- Employers will be permitted to match or contribute to employees’ Roth accounts
- In 2024, mandatory “Rothification” for catch-up contributions for high-income earners
- For wages in excess of $145,000 (adjusted for inflation) in the prior year
- Does not apply to Self-Employed Individuals
- Does not apply to IRAs, including SIMPLE IRAs
529-to-Roth IRA transfers
A maximum amount of $35,000 can be moved from a 529 plan to a Roth IRA during the beneficiary’s lifetime. The 529 plan must have been maintained for a minimum of 15 years, and the Roth IRA receiving the funds must be in the name of the beneficiary of the 529 plan.
Employer Plan Changes
Automatic retirement account enrollment for new, eligible employees if the employer has a 401(k) or 403(b) plan and meets the following requirements:
- More than ten employees
- Existed for at least three years
- Offer 401(k) or 403(b) plans
The employee’s contribution rate would begin at 3% and increase by 1% annually until it reaches 10%. Employees can opt out of enrollment.
Part-Time Employees are now eligible to participate in retirement plans when they work at least 500 hours for two years and are at least 21 years of age.