2023: New Year, New You, & New Tax Laws!

Brandon R. Amaral, CFP®, EA
Brandon R. Amaral, CFP®, EA

Founder & Financial Planner, Amaral Financial Planning

Now that the holidays have ended, it’s time to start focusing on your 2023 financial goals. Before you can get started, it’s important to note some significant tax law changes that were passed just a few weeks ago.

The SECURE Act 2.0 was signed into law by President Biden on December 29th. This law enhances most of the initiatives that were addressed in the original SECURE Act (passed back in 2019), which focused on retirement security and financial well-being.

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Here are the top changes to the tax law in 2023:

Employer match for roth accounts

Historically, if your employer offered a match to your 401(k) plan, the matching contributions had to be made on a pre-tax basis. This meant that any distributions you took from the account would trigger taxes in retirement.

However, this new provision allows employers to make matching contributions on an after-tax basis. This means that your earnings will not only grow tax-free, but the distributions in retirement will also be tax-free. This provision is effective immediately.

Automatic plan portability

Whether you were with your employer for a relatively short period of time or you didn’t have the financial means, you likely had a very small 401(k). The IRS allowed retirement plans to automatically cash out small account balances without the owner’s consent. This meant accounts with less than $5,000 would be cashed out and you would owe taxes and penalties on the amount.

The new provision allows retirement plans to provide automatic portability services. This means that instead of cashing out your 401(k), they can transfer your account into an IRA (Individual Retirement Account) and subsequently roll it over to your new 401(k) plan at your new job. This provision does not go into effect until 2024.

Student loan debt

Employer 401(k) matches have long been touted as “free money”. If you have student loans, you know how difficult it can be to save. Many people with student loans are not able to contribute to their 401(k)s, which means they are also not able to receive their employer’s 401(k) match.

This new tax law allows employers to make matching contributions to a 401(k), 403(b), or SIMPLE IRA if you make qualified student loan payments. This way, employees are still able to pay down their student loan debt while also saving for retirement. This provision does not go into effect until 2024.

Withdrawals for emergency expenses

When it comes to taking a distribution from your retirement account BEFORE age 59 1/2, you will typically owe Federal and State income taxes, as well as a 10% penalty. Some common exceptions to the 10% penalty include death, disability, education, or medical expenses.

The SECURE Act 2.0 provides an additional exception for distributions used for emergency expenses, such as personal or family emergencies. You will only be allowed one distribution per year of up to $1,000. You can repay the $1,000 back to the retirement plan within 3 years to avoid any tax implications. This provision does not go into effect until 2024.

Keeping up to date on new tax laws is crucial to saving for retirement and paying less taxes. If you would like to work with a financial planner to walk you through your options, I would love to help you!

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Disclaimer: This blog is for informational purposes only, and should not be considered advice or recommendations. All opinions expressed herein are solely those of Amaral Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made to another parties’ informational accuracy or completeness. You should consult your financial advisor, tax professional or legal counsel prior to implementation.