With the House of Representatives approving on December 23, 2022 the Consolidated Appropriations Act of 2023, HR 2617 also containing SECURE 2.0 Act as part of the mammoth $1.7 trillion omnibus spending bill, and the Senate also previously approving it on December 22, 2022, President Biden signed the bill into law on December 29, 2022.

Most of the 90 Retirement Account Provisions Found in SECURE 2.0 Act Won’t be Effective Until 2024 & Later Years Except for RMDs

Most of the provisions in the SECURE 2.0 Act of 2022 won’t start until 2024. The big provision that will take effect soon with a start date of January 01, 2023 is the increase of the required minimum distribution (RMD) age from 72 to 73. Also, the backdoor Roth IRA and mega backdoor Roth solo 401k were not impacted so they are still alive!

Here Are Some of the Most Popular Items Found in the SECURE 2.0 Act with Some Impacting Self-Directed Solo 401k Plans

RMDs: Increasing the RMD age for IRAs and qualified plans including solo 401k plans to 73 starting on January 1 2023, and age 75 starting in 2033. It also greatly reduces the excise tax on missed RMDs.

Important Note: This RMD update does not impact anyone already subject to RMDs in 2022 and prior years. Therefore, if you are already subject to RMDs under the previous 70 1/2 or 72 RMD age rules, you must continue with RMDs under those rules. In sum,  If you turned 72 in 2022 or earlier, you will need to continue taking RMDs as scheduled. If you’re turning 72 in 2023 and have already scheduled your withdrawal, you may want to consider updating your withdrawal plan.

Reduced Penalty for Missed RMDs: Prior to SECURE 2.0, a 50% penalty applied to missed solo 401k RMDs. Now the penalty is reduced to 25% and further reduced to 10% if the missed RMD is timely processed. This new rule is effective in 2023.

No RMDs for Roth Plans Including Roth Solo 401k Plans: Starting in 2024, solo 401k participants will no longer be required to process RMDs from their Roth solo 401k just like the current rules that apply to Roth IRAs.

Starter K (aka starter 401k): Full-time employers who do not offer a traditional 401k plan would offer the Starter K a lower cost to encourage more participation.  The limit on annual deferrals will be $6,000 with an additional $1,000 in catch-up contributions beginning at age 50. This section is effective for plan years beginning after 2023.

Par-Time Workers: Allowing workers to participate in employer plans after two consecutive 12-month periods of 500 hours of service. This provision is not effective until January of 2025 so it would not impact solo 401k plans immediately; therefore, the current part-time rule under the 2019 SECURE Act continues to apply for now which  which also applies to solo 401k plans and requires the plan offered to to part-time employees who have three consecutive 12-month periods of 500 hours of service and who satisfy the plan’s minimum age requirement. 

Student Loan Payments: Allowing student loan payments to be treated as elective deferrals for purposes of receiving matching contributions. This provision may not impact solo 401k plans sine matching contributions don’t apply to owner-only solo 401k plans.

Catch Up Contributions: Starting in 2025, implementing higher $10,000 (will be indexed for inflation) catch-up limits for solo 401k owners at age 60, 61, 62 and 63.

Caveat: If you earn more than $145,000, the catch-up contributions will need to be made on a Roth solo 401k basis if the account owner is aged 50 or older.

Employer Matching & Profit Sharing (Nonelective) Contributions: Employer contributions matching to qualified plans may be made on a pre-tax or Roth basis. Not: matching contributions apply to traditional 401k plans (i.e., full-time employer plans), NOT to owner-only solo 401k plans.

Second Catch-Up Contribution: Effective after 2024, a second catch up for those aged 60, 61, 62 or 63. This additional catch up amount is $10,000.

All Catch-up Contributions in Roth: Starting in 2024, all catch-up contributions must be made as Roth NOT pretax contributions if your earned income is over $145,000.

Tax Credit: Providing a 100% tax credit for the start-up of new retirement plans for certain employers.

529: Allows certain rollovers to Roth IRAs from 529 college savings accounts.

Emergency Savings Accounts: Available in 2024, A catchall exception allowing low-paid workers do make a maximum Roth contribution of $2,500 over the lifetime to a separate holding account within the plan for use for emergency purposes and the distribution would not be subject to the 10% early distribution penalty for account holders under age 59 1/2.

For more information on how SECURE 2.0 impacts Self-Directed IRAs, VISIT HERE.

Solo 401k Setup Deadine for Sole Proprietorship QUESTION