SECURE 2.0 Act of 2022 Retirement Plan Changes

Big changes have come to retirement savings rules and tax breaks because of the newly passed SECURE 2.0 Act of 2022. Here are the Federal Retirement plan updates.

FEDERAL UPDATES   Increased Age for RMDs: The current age for Required Minimum Distributions (RMDs) to begin is age 72. Under the new act, the minimum age would increase to 73 beginning January 1, 2023. It would increase to age 75 in 10 years.   Emergency Expense Distributions: Beginning in 2024, you will be allowed to take an early “emergency” distribution from your retirement account to cover unforeseeable or immediate financial needs. That emergency distribution of up to $1,000 could only be taken once during the year and will not be subject to the 10% early withdrawal penalty. If not paid back within a specified period of time, you would not be allowed to take another emergency distribution for three years.   Higher Catch-up Contributions: Right now, if you are age 50 or older, you can make catch-up contributions to your retirement plan up to certain limits. Beginning in 2025, those limits would increase to the greater of $10,000 or 50% more than the regular catch-up if you are 60, 61, 62, or 63 years old. After 2025, those amounts would be indexed for inflation.   Saver’s Match: Beginning in 2027, the nonrefundable Saver’s Credit for certain IRA and retirement plan contributions would be replaced with a federal matching contribution retirement plan contributions up to $2,000 per person. Some income limits and phaseouts will apply.   1099-K Reporting: In other news, the IRS released Notice 2023-10, which announces the delay of the $600 lower requirement for issuing Form 1099-K until the 2023 filing year. The existing 1099-K threshold of $20,000 in payments of 200 transactions will remain in effect.   PENNSYLVANIA UPDATES

The 2022-2023 Pennsylvania Budget was signed by Governor Tom Wolf on July 8, 2022. It includes several important changes to both corporate and personal income taxes. We identified some of the changes likely to impact the greatest number of taxpayers and these are outlined below.

Reductions in the Corporate Income Tax Rate: The current corporate income tax rate of 9.99% will be reduced by a full percentage point to 8.99% on January 1, 2023. From there, the rate will further be reduced by one-half a percentage point (0.50%) each year until 2031, when it will reach 4.99%.

Depreciation Expense and Section 179: Previously, the state of Pennsylvania did not adhere to the federal depreciation guidelines regarding section 179 and limited the deduction to $25,000 per year on personal income tax returns. Under the new budget, PA will conform to the federal limits for property placed in service in tax years beginning after December 31, 2022. The limit for this election to deduct the cost of certain qualifying property in the year it is placed in service is $1.08 million.

Section 1031 Exchanges: Pennsylvania will follow the guidelines of federal section 1031 which allows the gain from a like-kind exchange of real estate property to be deferred for personal income tax purposes. This change is effective for transactions occurring in tax years beginning after December 31, 2022.

Pennsylvania Dependent and Child Care Enhancement Program: A new program is being created to provide a refundable credit to taxpayers for expenses paid for childcare and household services deemed necessary for an individual to be employed. This is similar to the Dependent Care Credit that is currently offered for federal tax purposes. Eligible dependents are individuals under the age of 13 and individuals or spouses physically or mentally incapable of caring for themselves. The amount of the credit will be 30% of the related expenses, with a maximum credit of $315 for one dependent or $630 for two or more dependents.

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If you have any questions regarding the changes that are occurring and how they could affect you, please reach out to your accountant at Gift CPAs.

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