Automatic Enrollment Requirements

Plan sponsors of 401(k) and 403(b) plans will be required to automatically enroll eligible employees with a starting contribution of 3% of their salary beginning in 2025. This amount will increase annually by 1% until the deferral amount reaches 10% of their earnings. Employees can opt out if they do not wish to enroll in the sponsored retirement plan. This goes into effect for all existing defined-contribution plans if the employer has more than 10 employees and has existed for more than three years. Government and churches are excluded.

In addition, unenrolled participant notification requirements have been eliminated except for an annual reminder of plan requirements and their opportunity to participate.

Required Minimum Distribution

Over the next 10 years, the age when required minimum distributions go into effect will increase. Here are the highlights:

• • Participants who turn 72 in 2023 or later now can wait until age 73 to take their required minimum distribution.
  • Participants who turn 74 in 2033 or later can wait until they turn 75 before taking a required minimum distribution.

For those who failed to make their required minimum contribution, the Act reduces the penalty from 50% to 25%.

Penalty-Free Early Withdrawals

Certain hardships are eligible for penalty-free early withdrawals from retirement accounts, where retirement account owners are only responsible for applicable taxes instead of the early withdrawal fee. Eligible hardships have been expanded to include victims of domestic violence, terminally ill patients, and certain personal financial emergencies. In addition, victims of qualified federal disasters who have experienced significant financial impact may take an early withdrawal without penalty within 180 days of the disaster.

Catch-up Contributions

Currently, taxpayers aged 50 or older can make catch-up contributions to eligible retirement plans, like a 401(k) or IRA. Beginning in 2025, The Secure Act 2.0 increases limits to the greater of $10,000 or 50% more than the original catch-up amount for those aged 60, 61, 62, or 63. In addition, IRA catch-up limits will no longer be set to $1,000 per year but will increase with inflation. In 2024, catch-up contributions will also be subject to after-tax (ROTH) rules.

Roth Designated Employer Contributions

The Secure Act 2.0 permits qualified 403(b) and governmental 457(b) plans to allow employees to designate employer matching, nonelective contributions, and student loan matching contributions as pre- or post-tax contributions. Take note that Roth-designated employer contributions must be 100% vested.

Part-Time Worker Eligibility

If a part-time worker has worked for an employer for at least three consecutive years and worked a minimum of 500 hours per year for those three years, the plan sponsor must allow them to contribute to qualified 401(k) plans. Effective for 401(k) and 403 (b) plans beginning after December 31, 2024, the three-year requirement has been reduced to two years.

Credit for Small Employer Retirement Plans

Beginning in 2023, businesses with 50 employees or fewer can take a credit of up to 100% of the startup costs for workplace retirement plans, up to the annual cap of $5,000. This is an increase from the 50% credit previously offered.

To review how your tax strategy is affected by the Secure Act 2.0, reach out to our team of knowledgeable professionals. www.wsadvisors.com/contact

The post Secure Act 2.0 Updates Retirement Plans Starting in 2023 appeared first on Walter Shuffain.

We don’t expect immediate tax changes over the next year. However, never say never when it comes to congress.  

While preparing your business for the end of the year, look at these tax moves you may not have considered to lower your tax liability in 2022. 

Defer Taxable Income 

One way to lower your tax liability is to defer taxable income by increasing your deductible expenses, decreasing your income, or both. Consider sending invoices to clients in January 2023 rather than in December 2022 (if your cash flow allows). Then, pay outstanding invoices or bills before December 2022 instead of putting them off until next year. In addition, if your business team is considering selling investments or business properties, wait to close the sale until 2023 when possible.  

Maximize Retirement Plan Contributions 

Retirement plan contributions are an easy way to save for the future while decreasing taxable income. Bonus, monies deposited grow tax-free while it’s in the account. If your business already has a retirement plan set up, consider making the maximum deductible contribution for 2022. While you can sometimes make these contributions up until you file taxes, this reduces the timeframe for generating tax-deferred earnings.  

Don’t have a retirement plan established for your business? Now may be a good time to start one. Small business retirement plan options include the 401(k), defined benefit pension plans, SIMPLE-IRA plans, and SEP-IRAs. Self-employed persons can contribute up to 20% of self-employment earnings up to $61,000. If you’re self-employed by your corporation, that contribution increases to 25% of self-employed earnings up to $61,000.

In addition, setting up a retirement plan can come with additional tax credits. Small employers who start a new retirement plan are eligible for a nonrefundable income tax credit of up to $5,000 for the administrative and retirement-education-related expenses on qualified plans. Including an auto-enrollment feature on the qualified plan? Your business could be eligible for a tax credit of $500 yearly for the next three years.  

Contact our knowledgeable tax professionals to discuss the benefits of different retirement plans.  

Plan Your Business Asset Purchase 

In 2022, businesses can take a bonus depreciation deduction of 100% on qualified assets purchased during the year. Beginning in 2023, that rate drops to 80%, with the remaining 20% deducted during the asset’s recovery period. Note: Recovery periods can last up to 20 years, depending on the asset. 

Qualifying property that is not eligible for bonus depreciation may be eligible for Section 179, expensing up to $1.08 million. Keep in mind that this deduction begins to phase out when the asset’s cost exceeds $2.7 million. This means your business could possibly write off the entire cost of business asset purchases in 2022. Give our team a call to discuss what assets qualify for bonus depreciation and Section 179 deductions. 

Move Business Meetings 

The standard business meal deduction is 50% of the meal’s total cost. However, the cost of food and beverages for business meals provided by a restaurant that is paid or incurred in 2022 is 100% deductible. For businesses that use the per diem method to reimburse employees, consider asking those you’re meeting with in January to meet before the end of the year to increase business meal expenses while you can deduct the entirety of the cost. For businesses that use the cash method to reimburse meal expenses, consider prepaying the cost of business meals to be provided in a restaurant in 2023. It can be deducted if it is incurred within 12 months of the purchase date.  

To discuss any end-of-year moves your business can make to decrease your tax bill, or plan for the 2023 tax season (including the introduction of the Massachusetts Millionaire’s Tax), reach out to our team of experienced tax professionals! 

The post Time to Make Your Business Year-End Tax Moves appeared first on Walter Shuffain.