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SECURE 2.0 changes the rules governing how and when certain retirement savers can withdraw money from their retirement accounts and IRAs.

Required minimum distributions after SECURE 2.0

ARTICLE | February 20, 2023

Authored by RSM US LLP

The SECURE 2.0 Act of 2022 (SECURE 2.0), signed Dec. 29, 2022, makes significant changes to retirement legislation with focus on increasing retirement savings for employees and individual retirement account (IRA) owners. One of the major areas of focus in the new law is reforming required minimum distributions (RMDs). RMDs are minimum amounts that a retirement plan account owner or IRA owner must withdraw annually. The original SECURE ACT, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE 1.0), which became law on Dec. 20, 2019, had also made major changes to the RMD rules.

Prior to SECURE 1.0, an RMD was required to begin for the retirement account owner or IRA owner in the year in which the owner turned 70½. However, for the first RMD, the owner was allowed to defer that to no later than April 1 of the following year. That April 1 date is called the “required beginning date.” Delaying your first distribution to the following April 1st does require receiving your first two RMDs in the same tax year. Following the enactment of SECURE 1.0, the age to begin RMDs was increased to 72. For example, if you turn 72 in 2022 or later you are allowed to take your first RMD anytime from January 1 of the year you turn 72 until April 1st of the following year. For all future years, each year’s RMD would be required by December 31 of that year.

In addition to the change in the required beginning date to April 1 of the year following the year in which the retirement plan or IRA owner turns 72, SECURE Act 1.0 changed the payout rules for named beneficiaries. Under SECURE 1.0, named beneficiaries can fall into three categories:

  1. Designated beneficiaries (DB)
  2. Eligible designated beneficiaries (EDB)
  3. Non-designated beneficiaries (NDB)

A DB is any individual, whereas an EDB is a defined subset of certain individuals and trusts and an NDB is a non-individual. An EDB includes: (1) a spouse, (2) minor children (until age 21) of the deceased account owner; (3) individuals not more than 10 years younger by date of birth; and (4) disabled or chronically ill individuals and certain trusts.

SECURE 1.0 changed the rules for a DB who inherits from a retirement or IRA owner dying after Dec. 31, 2019. With limited exceptions, the legislation requires a DB to take complete distributions of the benefits by the end of the year containing the tenth anniversary of the account owner’s death, regardless of whether the account owner died before or after their required beginning date. However, proposed IRS regulations required the DB to continue to take distributions at least as rapidly over the longer of (1) the account owners remaining life expectancy or (2) the beneficiary’s life expectancy, with full distribution by December 31 of the year containing the tenth anniversary of the account owner’s death.

The proposed regulations requirement for “at least as rapidly” distributions caught many taxpayers by surprise with the expectation that no distributions were required prior to the end of the tenth calendar year following the calendar year of the employee’s death. This interpretation by the proposed regulations resulted in some taxpayers not taking an RMD for 2021 and being unsure if they were required to take an RMD in 2022. Notice 2022-53 provided transition relief for taxpayers who inherited an IRA as a DB and did not take a RMD – referred to in the notice as “specified RMDs” for 2021 and 2022 when required. Under the transition relief, a defined contribution plan or IRA that failed to make a specified RMD will not be treated as having failed to satisfy section 401(a)(9) for the 2021 or 2022 calendar years because it did not make the distribution(s). The IRS will not assess the 50% excise tax for failure to make the RMD. Note that no such relief currently exists for 2023 RMDs.

RMDs for EDBs, other than spouses, depend upon whether the owner dies before or after his or her required beginning date. If death occurs before this date, the non-spouse EDB would be paid over the beneficiary’s life expectancy. The non-spouse EDB may elect to receive the funds under the 10-year rule instead of the life expectancy rules. If death occurs after the required beginning date, the non-spouse EDB must begin taking RMDs by December 31 of the year following the year of death. The RMD may be paid over the longer of the (1) account owner’s remaining life expectancy, or (2) the beneficiary’s life expectancy using the Single Life Table. If the EDB is a minor child, these rules apply, however, the full account balance must be distributed by the end of the year in which the child attains age 31.

An NDB is a decedent’s own estate, any charity named as a beneficiary, and any trust that does not

qualify as a designated beneficiary. If the beneficiary is an NDB, the provisions of SECURE 1.0 do not apply, the prior RMD rules continue to apply. The RMD rules depend upon whether the owner died before or on or after the required beginning date. If the owner’s death occurs prior to the required beginning date, the distribution must be completed by December 31 of the fifth year after the owner’s death, with no annual distribution requirement. If the owner’s death occurs after the owner’s required beginning date, the NDB calculates the required distributions using the owner’s non-recalculated life expectancy under the Single Life Table using the owner’s age on December 31 in the year of death.    

Roth IRAs do not require withdrawals until after the death of the owner. The date of death of the owner becomes the Required Beginning Date. If the beneficiary is a DB, the full distribution is required by December 31st of the year containing the tenth anniversary of the account owner’s death. The DB is not required to take any distributions prior to the tenth year as there is no “at least as rapidly” rule for Roth account balances.

Further changes under SECURE 2.0

The passage of SECURE 2.0 on Dec. 29, 2022. once again made changes to the RMD rules. The RMD age was changed to age 73 for persons attaining age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033; and age 75 for persons attaining age 74 after Dec. 31, 2032. Age 72 is retained for persons attaining age 72 in 2020 through 2022 and age 70½ for person attaining age 70½ prior to 2020. The change is effective for RMDs after Dec. 31, 2022, for individuals who attain age 72 after that date.

There is an apparent drafting error in the law. Individuals born in 1959 will turn 73 before Jan. 1, 2033, and they would seem to have to begin taking RMDs in 2033. However, those same persons born in 1959, will also attain age 74 after Dec. 31, 2032 – that would suggest that they would not have to begin RMDs until they attain age 75. We can expect either Congress to adopt a technical correction or IRS to provide further guidance as to which age RMDs will begin for these individuals.

No taxpayers will have their first RMD in 2023. Anyone born in 1950 turned 72 in 2022, and such a person had to begin taking RMDs in 2022. However, anyone born in 1951 turns 72 in 2023 and will not have to begin taking RMDs until they attain age 73 in 2024.

SECURE 2.0 also removed the disconnect on the RMD rules between Roth IRAs and qualified plan Roth accounts. Before SECURE 2.0 qualified plan Roth accounts were subject to RMDs during the plan participant’s life. Now as with Roth IRAs, RMDs are not required from such accounts until the plan participant dies. 

Congress has also reduced the penalty for failure to take an RMD from 50% of the amount required to be withdrawn during the year to 25%, and further to 10% if corrected within two years.

Finally, SECURE 2.0 now permits sole designated surviving spouses to elect to treat the deceased spouse’s qualified plan accounts (e.g., a 401(k) plan) as their own for purposes of the RMD. Prior to the change, the rule only applied to IRAs.

Take aways and reminders.

SECURE 2.0 changes the rules governing how and when certain retirement savers can withdraw money from their retirement accounts and IRAs. RMDs force taxpayers to withdraw from those accounts after a certain age, raising revenues and preventing use of the accounts as tax shelters for wealth accumulation.

Two rules that have not changed but are often overlooked are: (1) if the decedent did not take an RMD in the year of death, the IRA or qualified plan must distribute that year of death RMD to a beneficiary, and (2) that the still-working exception for qualified plans does not apply to IRA owners and to plan participants who own more than 5% of the company.

SECURE 2.0, just like SECURE 1.0, left the age 70½ rule in place for Qualified Charitable Distributions (QCDs). That means taxpayers can still make charitable distributions directly from their IRAs starting at age 70½.

A significant amount of estate planning has been centered on younger beneficiaries being able to receive distributions over their life expectancies (i.e., the so-called stretch IRA). Except for certain disabled beneficiaries, that option is gone, and taxpayers should be revisiting how their tax-deferred plans fit within their overall estate plan.


This article was written by Nancy Manary, Bill O’Malley and originally appeared on 2023-02-20.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/services/business-tax/required-minimum-distributions-after-secure-2-0.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Perry & Associates CPAs, A.C. is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Perry & Associates CPAs, A.C. can assist you, please contact us.

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Nonprofits need to overcome the workforce shortage. Organizations must innovate because the labor market will remain tight for the foreseeable future.

Nonprofits after the Great Resignation: Overcoming the workforce shortage

ARTICLE | February 13, 2023

Authored by RSM US LLP

Nonprofit leaders are accustomed to doing more with less. They thrive despite limited funding, staffing, supplies and reimbursement rates. Over the past few years, however, nonprofits have had to do more with less of their most critical asset: employees.

The Great Resignation was more than a pandemic-era problem. It was part of a long-term trend in employment rates driven by several factors—although the pandemic and its economic implications certainly intensified it. Nonprofits need to accept that and prepare for this employment struggle to be the new normal—not a short-term blip.

The pandemic-era employment drop and recovery

In the first three months of the COVID-19 pandemic, “nonprofits lost a conservatively estimated 1.64 million … jobs, reducing the nonprofit workforce by 13.2% as of May 2020.”[1] In fact, it wasn’t until October 2022 that the number of jobs in the nonprofit sector rebounded to the baseline measurement in 2017 (the most recent nonprofit-specific count from the Bureau of Labor Statistics).[2] The sector’s employment has continued a positive trajectory month over month, much like the American economy.

Despite staff shortages, however, the nonprofits’ work never eased up. So how did nonprofits continue serving their members and constituents? They had to get creative and work smarter.

tl-nt-all-nfp-0223-nonprofits-after-the-great-resignation-article-graphs

Looking further back

As catastrophic as the pandemic was—in the early months especially—a look further back clarifies an important trend in American employment. Since unemployment peaked around 10% during the Great Recession of the late 2000s, it has been in a steady decline toward the 3.5% rate at the end of 2022—well below the assumed natural unemployment rate (4.4%).[3] For the two years leading up to the pandemic, and then again starting in 2022, there simply were not enough workers to fill job openings. This worker shortage is noticeably true in the nonprofit sector. As of the end of 2021 (the most recent data currently available), three-quarters of nonprofits indicated that they had job vacancy rates of 10% or more.[4] Factors in American demographics, such as the Baby Boomer generation entering retirement age and the decrease in immigration rates, indicate that this trend of a tight labor market is unlikely to reverse anytime soon.

Getting creative with staffing models

Many nonprofit employees don’t have easily definable job descriptions. And as work boundaries fade, burnout and turnover can increase.

Therefore, many nonprofits have looked outside the traditional workforce for support, engaging with outsourcing firms and independent contractors. Outsourcing the nonprofit’s administrative operations has the double benefit of leveraging efficiencies and the provider’s expertise along with alleviating staff members of the burdens of critical functions like finance, human resources and information technology.

Nonprofits have long been adept at hiring consultants who are experts and leaders in their field, but what about the vast number of individuals active in the gig economy who have talents and skill sets that meet other niche needs? Independent contractors can be a useful, timely supplement to existing staff—not only as subject matter experts but in any number of mundane or routine operations. Examples for nonprofits include staffing for events, graphic and web design, and even monitoring and evaluation techniques. While nonprofit staffing is at critically short levels, outsourcing firms and the gig economy of independent contractors have never been more robust.

Working smarter with automation

In Economics 101, we learned that productivity is a function of labor (human resources) and capital (technological resources). As one decreases, the other will need to increase to maintain a consistent output level. The Great Resignation has shown this principle to be especially pertinent, with modern technological capabilities rising to the challenge of limited human resources. Nonprofit leaders may balk at terms like “artificial intelligence” and “machine learning” (though these tools are more accessible than ever). But effectively leveraging standard, modern technology can drastically reduce the human hours required for almost any task.

One area in which nonprofits commonly have an issue is financial data. Organizations may have different departments looking at the same donor or member revenue in multiple software platforms. Nonprofits can reduce the touch points and manual human engagement by half or more by using techniques like data warehousing, business intelligence tools and system integration.

The other area for significant efficiency opportunities is data monitoring and evaluation. By tracking internal and external data points and responses to activities, nonprofits can easily spot trends and analyze the effectiveness of programs, communications and campaigns to help focus resources on the most successful strategies.

The Great Resignation or the new normal?

Nonprofits need to adapt to current staffing levels with the mindset that this is the new normal. Unemployment is still historically low, and older workers are retiring in massive numbers. Rather than riding out the Great Resignation, nonprofits need to take action now to leverage nontraditional staffing models and optimize technology for their organizations. There are modern alternatives to “doing more with less,” and proactive nonprofit leaders will readily adapt to these strategies.


Nonprofit employment during the COVID-19 Crisis, Center for Civil Society Studies Archive
Nonprofit Employment Estimated to Have Recovered from COVID Pandemic-Related Losses as of December 2022, George Mason University:
3 U.S. Federal Reserve
National Council of Nonprofits, The Scope and Impact of Nonprofit Workforce Shortages


This article was written by Matt Haggerty and originally appeared on 2023-02-13.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/industries/nonprofit/nonprofits-after-the-great-resignation.html

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Perry & Associates CPAs, A.C. is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Perry & Associates CPAs, A.C. can assist you, please contact us.

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For too many boards, the audit committee remains a catch-all for issues that don’t seem to fit elsewhere. A roundtable discussion.

Making audit make sense

ARTICLE | February 08, 2023

Authored by RSM US LLP

The past few years of upheaval have underscored a fact that anyone serving on an audit committee well knows—the array of potential risks facing each and every company today is simply too vast and varied for any board to cover in full. How, then, to get enough of a handle on the full spectrum of concerns to ensure that the company is as prepared as it possibly can be—at least for those deemed most crucial?

It’s a question audit committees have been wrestling with for some time, agreed directors participating in a recent roundtable co-sponsored by Corporate Board Member and RSM, several of whom remarked on the boundless nature of the role. “Over the years, we’ve spent more and more time on cyber security, because the threats change, and the amount of industrial equipment that could be attacked goes up every day,” said Neil Novich, a director at W.W. Grainger. “We’re looking at ESG metrics, not just collecting them, but what will it mean if we have to report on them? We spend time on the world—what if the war in Ukraine escalates?—on inflation, on talent. It’s a little bit of everything. Basically, if no one knows where to put it, it ends up in the audit committee.”

“One of the ­things audit committees struggle with­is marrying the reporting risks and the­ enterprise-level risks. “Then ­at the board level, how much information do you need? Which risks are most ­important this quarter? How are they ­evolving year over year?”

Allison Egbert, Partner, audit services­ and SEC practice leader, Boston and ­Northeast region at RSM

By their very nature, risks continually evolve, unfolding in new ways and reordering themselves in importance, added Allison Egbert, partner, audit services, and SEC practice leader, Boston and Northeast region at RSM. “One of the things audit committees struggle with is marrying the reporting risks and the enterprise-level risks,” she noted. “Then at the board level, how much information do you need? Which risks are most important this quarter? How are they evolving year over year?”

Cybersecurity and IT are perennially top-of-mind. However, companies’ ability to attract and retain talent, comply with new reporting requirements, and adapt to operate in inflationary times are now also primary areas of concern, agreed participants, several of whom ex-pressed frustration about the ever-growing list of priorities.

“textBoard members need to start to be concerned about information overload.

John Baily, Lead Director, RLI

“Board members need to start to be concerned about information overload,” said John Baily, lead director at RLI. “I just read the first draft of one of my companies’ ESG disclosure documents guessing where the SEC will end up in terms of mandatory disclosure, which is a project all by itself. Meanwhile, all boards are focused on IT and how to get and stay informed. I don’t think you can add enough board seats to cover all the topics on which we need expertise.”

“There’s a skill to being a board member that doesn’t have to do with being a subject matter expert”

Greg Serio, Director, Radian Group

Ensuring expertise

Concern over the widening array of risks is shining a spotlight on board composition. However, some directors view CEO experience rather than expertise with a specific risk as what truly best equips boards to navigate emerging risks. “It’s a given that we keep up with things impacting our companies, but there’s a skill to being a board member that doesn’t have to do with being a subject matter expert,” said Greg Serio, a director at Radian Group. “That’s as a skilled scrutinizer for the purpose of promoting and developing shareholder value. This is why companies like C-Suite people on boards because they’ve done that with all the people underneath them. You don’t have to be an expert in a subject if you’ve got the skill of inquiring.”

Boards can, and should, question management closely, agreed Hussain Hasan, principal and national leader of technology risk consulting at RSM, who notes that audit committees must ensure that management is tech savvy enough to see and dissect the value of emerging technologies. “With AI, I would ask. how do you know the AI engine is working and was designed properly? How do you tell your regulators that it’s doing the right thing—because knowing is one thing. and convincing the regulator is another.”

“Boards can, and should, question ­management closely, agreed Hasan, who ­notes that audit committees must ensure ­that management is tech savvy enough ­to see and dissect the value of emerging ­technologies. “With AI, I would ask. how­ do you tell ­your regulators that it’s doing the right­ thing—because knowing is one thing. and ­convincing the regulator is another.”

Hussain Hasan, Principal and national leader of­ technology risk consulting at RSM

Still, many boards continue to explore building expertise into the current board or finding ways to bring it in from outside. At Radian, for example, the board called on a director from each committee to adopt and watch over a functional area. “It allows each person to take a deeper dive in an individual area and really know what’s going on,” Serio explained. “We also don’t hesitate to hire external experts. We spend time with cyber auditors and have experts in compliance come in every two to three years. So there are ways to get it done.”

Some audit committees chose to adjust their meeting practices to cope with the workload. “We broke our audit committee meetings into two separate one-day sessions in order to cover everything,” noted Kathleen Camilli, a director at Unifirst. “We have very deep dives where management comes in and very deep dives with internal and external experts. Meetings also go on longer and longer.”

Board members also need to walk in prepared, noted Samantha Holroyd, lead director and an audit committee member at Chord Energy. “I’ve been challenging my board members to educate themselves outside of our boardroom,” she said.

“The culture has to be perpetual learning,” agreed Jeff Geygan, a director at Wayside Technology and Rocky Mountain Chocolate and CEO of Global Value Investment. “I tell people when they join the board, ‘This is a roll-up-your-sleeves kind of assignment. You’ll get paid pretty well, but you’ll do some homework at night, for sure. And if you don’t want to take that on, this is probably not the right place for you to sit.”

Shifting to subcommittees

In some cases, recognition of the significance of a particular risk has led audit committees to hive off subcommittees devoted to a single area of concern. For example, healthcare company Ensign’s audit committee formed a separate entity focused on cybersecurity. “A healthcare data leak impacts every single aspect of the business, regulatory, financial, compliance—the criticality was so big that to have it buried by other matters would not be right,” explained Swati Abbott, a director at the company. “So we spun out a committee where we have internal audits for regulatory and compliance, for how we bill patents, how we protect privacy, and then that committee reports up to the board and the audit committee.”

The shift enabled more effective oversight of the broad spectrum of cyber risk. For example, Ensign’s board was able to look more closely at billing risk, at the regulatory environment, and at the role technology and data analytics can play in privacy. “We can have those interactive discussions, and then the audit committee gets the shout-out reporting,” explained Abbott.

For other boards, the solution entailed taking a hard look at scope creep for the audit committee. “As chair, I try to keep our focus on reporting risk,” explained Ellen Masterson, director, and audit committee chair at both Insperity and Westwood Holdings. “What are the systems and processes that build the information, and are they auditable? Are we using internal audit now to build the platform so that when these things do require an auditor’s report, we’ll be there? So when someone says, ‘Oh, the audit committee is responsible for ESG,’ I say, ‘Wait a minute, we’re responsible for the reporting and auditability, but not for the performance.”

While audit committees have historically taken a triage approach to prioritizing competing risks, assessing and agreeing on the levels of various risks has become more complex. “We use dashboards to identify the top 10 financial risk items each year and then set our agenda to make sure we get through them all during the year,” said John Kurtzweil, director and chair of the audit committee at both Axcelis Technologies and SkyWater Technology Foundry, whose audit committee regularly brings in outside expertise both with management present and for private sessions. “Management always gets concerned, but I’ve told my CFOs, ‘Just get over it.’ Because we’re the audit committee; we’re not management. So we’re going to do independent research, and we’re going to ask independent questions.”

Ultimately, it’s that challenge today’s audit committees must navigate: having the willingness to continually dig in, learn and evolve along with the company and its industry enough to be able to ask the right questions about the right risks. “We’re all brought onto boards to scrutinize, ask probing questions, take in the information we are provided—or not provided, as the case may be—and challenge management,” said Serio. “We don’t need to be, and we never will be, the subject matter experts. We’re never going to be able to afford all the subject matter experts we want.

“So we have to focus on: Is management handling this information well? Are they responding to things in the marketplace? Despite everything that’s emerged the past few years and that will emerge as time goes on, the job is still the same job. At the end of the day, the question that will come from a shareholder, from a regulator, from a lawyer, will be: Was the board asking the right questions?”

This article appeared in the Q1 2023 issue of Corporate Board Member. Reprinted with permission.


This article was written by Allison Egbert, Hussain Hasan and originally appeared on 2023-02-08.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/services/audit/making-audit-make-sense.html

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Perry & Associates CPAs, A.C. is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Perry & Associates CPAs, A.C. can assist you, please contact us.

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Financial statement preparers should consider the impact of new tax laws and regulations on income tax calculations and disclosures in their 2022 financial statements.

Income tax provision considerations for financial statement preparers

ARTICLE | February 07, 2023

Authored by RSM US LLP

Financial statement preparers should consider the impact of new tax laws and regulations on income tax calculations and disclosures in their 2022 financial statements. While the list below is not intended to be comprehensive, it provides a high-level summary of new laws that affect the 2022 tax year and may impact 2022 financial statements. For further information please consult RSM’s tax alert and RSM ASC 740 tax specialists and/or income tax SMEs. RSM’s full year-end tax alert can be accessed here.

Required capitalization of research and experimental expenditures

The Tax Cuts and Jobs Act (TCJA) of 2017 requires companies to capitalize research and experimental (R&E) expenditures beginning with tax years beginning after December 31, 2021 (i.e., calendar year 2022 tax returns). Domestic and foreign capitalized R&E expenditures are amortized over five and 15 years, respectively. Prior to the TCJA, these expenditures were expensed and deductible in the year incurred.

In accordance with the provisions of the Financial Accounting Standards Board’s Accounting Standards Codification (ASC) Topic 740, Income Taxes, the new capitalization and amortization requirements will generally result in a temporary difference, with offsetting increases/decreases in current and deferred taxes. There may also be other indirect effects on a company’s income tax provision. For example, companies that have historically incurred taxable losses will need to carefully consider the impact of this capitalization on current taxable income, utilization of net operating losses, and realization of deferred assets. Foreign entities should also consider the impact of the global intangible low-tax income (GILTI) inclusion, and its interaction with the R&E capitalization, on their 2022 income tax returns and financial statements.

Limitations on interest expense under section 163(j)

Under section 163(j), a taxpayer’s interest expense deductions are generally limited to 30% of adjusted taxable income (ATI). The determination of ATI no longer includes an add-back for depreciation, amortization, or depletion in tax reporting years beginning on or after January 1, 2022. Companies need to assess the impact of this change on both their 2022 income tax returns and financial statements.

Inflation Reduction Act (IRA)

The Inflation Reduction Act (IRA) of 2022 includes a corporate alternative minimum tax (CAMT) effective for tax years beginning on or after January 1, 2023, that applies to each of the following:

  • Corporations (excluding certain entities, as defined) with a three-year average adjusted financial statement net income (as defined) exceeding $1 billion, or
  • Domestic (U.S) corporations (excluding certain entities, as defined) that are part of a controlled group with a foreign parent, where the aggregate three-year average adjusted financial statement income (as defined) for such domestic corporations exceeds $100 million, provided that the three year average total adjusted financial statement income of the controlled group exceeds $1 billion.

The IRA also includes a new tax on public companies that repurchase their shares after December 31, 2022. This tax is not an income tax accounted for under ASC 740. Instead, the tax should be accounted for as a cost of the stock repurchase (i.e., within equity).

While the provisions of the IRA are effective for periods beginning on or after January 1, 2023, reporting entities should consider whether disclosures are required within their 2022 year-end financial statements.


This article was written by RSM US LLP and originally appeared on 2023-02-07.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/financial-reporting/income-tax-provision-considerations-for-financial-statement-prep.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Perry & Associates CPAs, A.C. is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Perry & Associates CPAs, A.C. can assist you, please contact us.

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A recent IRS fact sheet explains tax credits for energy efficient home improvements residential energy property.

IRS releases fact sheet regarding residential energy credits

TAX ALERT | January 10, 2023

Authored by RSM US LLP

Executive summary 

The Inflation Reduction Act of 2022 (IRA) amended the existing credit for energy efficient home improvements under section 25C and the credit for residential energy property under section 25D of the Internal Revenue Code. In December, the IRS released Fact Sheet 2022-40 detailing the general requirements for both credits available under sections 25C and 25D, as well as several FAQs regarding energy efficient home improvements and residential clean energy property credits. The FAQs and examples provide helpful explanations and sample applications of the law to sample facts.

IRS releases fact sheet regarding residential energy credits 

The Inflation Reduction Act modified the two existing individual income tax credits for energy-related residential improvements. Some of the modifications included the extension of both credits, the elimination of a lifetime cap for one credit and the addition of properties eligible for both credits. Each credit is a nonrefundable personal tax credit and may only be used to decrease or eliminate a taxpayer’s liability. 

The IRS in December released Fact Sheet 2022-40 containing descriptions of the two tax credits and a series of FAQs to apply the rules to sample facts. The fact sheet covers the following topics:

  • Energy Efficient Home Improvement Credit: Qualifying Expenditures and Credit Amount
  • Residential Clean Energy Property Credit: Qualifying Expenditures and Credit Amount
  • Energy efficiency requirements
  • Qualifying residence
  • Labor costs
  • Timing of credits
  • General questions
  • Examples

Energy efficient home improvement credit 

Prior to Dec. 31, 2023, the energy efficient home improvement credit had a $500 lifetime cap. The IRA  amended the credit to allow for an increase of up to $1,200 annually for qualifying property placed in service on or after Jan. 1, 2023, and before Jan. 1, 2033. 

There are annual credit caps within the overall $1,200 annual limitation imposed on various qualified properties. There are exceptions where the maximum credit may be up to $3,200 depending on the mix of property installed by the taxpayer during the year. 

In general, the credit is equal to 30% of the aggregate amounts paid for qualifying expenditures. Qualifying expenditures include: 

  • Qualified energy efficient improvements installed during the tax year 
  • Residential energy property expenditures during the tax year 
  • Home energy audits during the tax year 

The fact sheet uses FAQs and examples to demonstrate the annual credit limitation rules, describe qualifying property and explain other rules for credit qualification. 

Residential clean energy property credit 

The IRA extended the residential clean energy property credit through 2034 and modified the associated credit rates. In general, the residential clean energy property credit is a 30% credit for certain qualified expenditures made by a taxpayer for residential energy efficient property during a year. The credit rate of 30% now applies to property placed in service after Dec. 31, 2021, and before Jan. 1, 2033. 

The residential clean energy property credit percentage now phases down to 26% for property placed in service in 2033, 22% for property placed in service in 2034, and 0% for property placed in service after Dec. 31, 2034 (i.e., no credit is available for property placed in service after the calendar year 2034). 

Starting in 2023, the IRA added expenditures for battery storage technology as qualifying for this credit. Several potentially qualifying expenditures are eligible for the credit, including the following: 

  • Solar electric property expenditures (solar panels)
  • Solar water heating property expenditures (solar water heaters)
  • Fuel cell property expenditures
  • Small wind energy property expenditures (wind turbines)
  • Geothermal heat pump property expenditures
  • Battery storage technology expenditures

The fact sheet uses FAQs to describe qualifying property and the way the credit’s rules are applied to sample facts.

Washington National Tax takeaways

There are no surprises or revelations of planned additional guidance within the fact sheet. The FAQs and examples provide helpful explanations and sample applications of the law to sample facts. 

The elimination of the lifetime credit cap for the energy efficient home improvement credit and the expanded list of qualifying expenditures available for both credits have the potential to incentivize investments in qualifying property. However, taxpayers should carefully consider the annual limitations, credit percentage phaseouts and residential use requirements (e.g., primary or secondary residence) that may apply to credit claims.   

In order to prevent invalid claims for various credits, buyers and manufacturers of energy-related residential property must watch for forthcoming guidance that may clarify the process for identifying and certifying qualifying expenditures. Eligible claimants should consult with their tax advisor on the various energy incentives to ensure compliance with the provisions.  


This article was written by Deborah Gordon, Brent Sabot, Leo Rich and originally appeared on 2023-01-10.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/IRS-releases-fact-sheet-regarding-residential-energy-credits.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Perry & Associates CPAs, A.C. is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Perry & Associates CPAs, A.C. can assist you, please contact us.

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SECURE 2.0 Act significantly changes the tax rules governing qualified retirement plans and individual retirement accounts (IRAs).

Key takeaways for employers under the SECURE 2.0 Act of 2022

TAX ALERT | January 06, 2023

Authored by RSM US LLP

Executive summary: SECURE 2.0 Provisions

SECURE 2.0 Act of 2022, enacted Dec. 29, 2022, significantly changes the complex tax rules applicable to employer-provided retirement plans, including opportunities and burdens for plan sponsors.

Key takeaways for employers under the SECURE 2.0 Act of 2022

The SECURE 2.0 Act of 2022 (the Act), enacted on Dec. 29, 2022, as part of the Consolidated Appropriations Act, 2023,1 is one of the most comprehensive pieces of retirement legislation in decades. 

The Act generally focuses on increasing retirement savings for employees and individual retirement account (IRA) owners.2 For example, the Act attempts to encourage participants to save more on a tax-favored basis by raising the otherwise applicable annual contribution limits for qualified retirement plans and allowing participants greater access to their retirement savings in the event of an emergency without application of the 10% early distribution penalty.3  The Act also provides tax credits and streamlines administration as an incentive for small businesses without a retirement plan to adopt one.

In addition, the Act may be read to expand coverage to more employees, provide incentives for more employer contributions, and ease administrative burdens associated with nondiscrimination testing, plan enrollment, mandatory participant disclosures, correction of plan qualification failures and deadlines for adopting plan amendments under prior legislation. 

Some of the Act’s provisions have been under discussion for years, while others seem to be trial balloons requiring the various regulatory agencies to monitor and report on their usefulness to Congress.4

Some of the key provisions affecting employers are described below.

Automatic enrollment mandatory for new 401(k) and 403(b) plans

Plan sponsors are required to include an “eligible automatic contribution arrangement” (EACA) in new 401(k) or 403(b) plans established after the date of enactment,5  including a contribution rate during the first year of participation of not less than 3% or greater than 10% unless the participant opts out, with an automatic 1% annual deferral increase up to a maximum of 15% (10% for 401(k) safe harbor plans). After deferral, participants must have the right to withdraw such automatic contributions from the plan within 90 days of the first contribution. 

Automatic contribution arrangements are no longer voluntary, except for 401(k) and 403(b) plans established prior to Dec. 29, 2022 (date of enactment); savings incentive match plan (SIMPLE), governmental and church plans; plans of employers with fewer than 10 employees; and plans of employers in existence for less than three years. Employers that adopt an existing multiple employer plan after the enactment date are not entitled to rely on that plan’s grandfathered status and will need to comply with applicable automatic enrollment rules. In order to allow employers and plan providers a transition period to develop automatic enrollment procedures, the provision is generally effective for plan years beginning after Dec. 31, 2024.

Expanded qualified plan start-up credit for small employers

The existing tax credit for qualified plan start-up costs for employers with no more than 50 employees is increased from 50% to 100% of such costs, starting with the 2023 tax year.6 The Act also provides for an additional credit of up to $1,000 per employee. This additional credit applies to employers with up to 50 employees and is phased out for employers with between 51 and 100 employees. The additional credit does not apply to defined benefit plans and in determining the credit, the employer cannot take into account contributions made for employees who earn more than $100,000 (indexed).

Student loan repayments may be treated as elective deferrals for matching purposes

Starting in 2024, employers may make a matching contribution to a 401(k), 403(b), 457(b) or SIMPLE IRA plans, based on the amount of a qualified student loan repayment made by a participant to a lender during the applicable period.7  The loan repayment amount is treated as if the participant had deferred the amount under the plan, even though no deferral amount is actually withheld from the participant’s eligible compensation or contributed to the plan by the participant. 

The Act treats student loan repayment amounts as elective deferrals or elective contributions for purposes of the annual limits under section 402(g) ($22,500 for 2023, as indexed), section 408(p)(2)(E) ($15,500 for 2023, as indexed) and section 457(b)(2) ($22,500 for 2023, as indexed). Self-certification is permitted with respect to whether and to what extent the participant actually makes student loan repayments. 

Election to treat fully vested employer contributions as Roth contributions

Effective as of the date of enactment, a plan may permit employees to elect to treat fully vested employer matching and other employer contributions as after-tax Roth contributions (including student loan “matching contributions”) and include such amounts in income in the year received.8  This provision does not apply to SIMPLE-IRA plans.

Expansion of coverage to part-timers 

For plan years beginning after 2024, a part-time employee credited with more than 500 hours of service in two consecutive years with an employer maintaining a 401(k) or 403(b) plan must be eligible to make elective deferrals under the plan but is not required to receive employer contributions unless the plan so provides. For this purpose, the two consecutive year period means two consecutive 12-month periods, excluding any 12-month period beginning before Jan. 1, 2023.9   

The original provisions in the SECURE Act of 2019 required participation by such long-term part-time employees starting Jan. 1, 2024, and required three, rather than two, consecutive years with more than 500 hours of service. 

Pre-2021 years with at least 500 hours of service credit must be counted for vesting purposes to the extent the plan provides that such employees are eligible for employer contributions. The pre-2021 service exclusion for vesting and the top-heavy clarification are effective for plan years after Dec. 31, 2020. 

Small immediate incentives for participating in a qualified plan

Employers are permitted, starting after the date of enactment, to encourage employees to save by providing a de minimis financial incentive to employees contingent on an election to make 401(k) or 403(b) plan deferrals,10  e.g., giving away a gift card or promotional item if they enroll.  Providing such de minimis incentives to non-highly compensated employees may encourage them to enroll, possibly resulting in a positive effect on nondiscrimination tests relating to elective deferrals.

Increase in the small account balance mandatory cash-out limit

After 2023, the maximum small account balance mandatory cash-out limit of $5,000 is increased to $7,000,11  with respect to a plan provision requiring a mandatory rollover to an IRA without participant consent of account balances of more than $1,000 and not more than the maximum limit. 

Changes to the Internal Revenue Service (IRS) Employee Plans Compliance Resolution System (EPCRS)

The Act changes the EPCRS rules by eliminating the requirement that “significant” failures eligible for self-correction must be corrected by the end of the third year following the year in which the failure occurred. The Act further provides that EPCRS corrections are sufficient for relief under the Department of Labor (DOL)’s Voluntary Fiduciary Correction Program and that self-correction for participant loan failures will be permitted without regard to current EPCRS restrictions.12  

In addition, while it did not previously apply to IRAs, EPCRS will apply to certain IRA failures and corrections, including a waiver of the excise tax for required minimum distribution failures and a non-spouse beneficiary’s ability to return distributed amounts to an inherited IRA after an ineligible rollover.13 

403(b) plan enhancements 

  • Starting after 2022, multiple employer 403(b) plans are permitted, subject to special annual reporting requirements.14 
  • Starting after 2023, 403(b) plan hardship withdrawal sources are expanded beyond elective deferrals to also include qualified nonelective employer contributions, matching contributions and earnings.15 
  • As of the date of enactment, 403(b) plan custodial account investments are expanded to allow participation in any group trust intended to satisfy applicable requirements (under Rev. Rul. 81–100 or any successor guidance), regardless of whether other trust participants are 403(b) custodial accounts. Previously, 403(b) plan custodial account investments were limited to mutual fund investments (i.e., regulated investment company stock) and group trusts comprised solely of section 403(b) custodial accounts.16  A note of caution here, the Act did not address section 3(c)(11) of the Investment Company Act of 1940 which precludes most 403(b) plans from making such investments. 

Changes in the required minimum distribution rules

  • The age for required minimum distributions from IRAs or qualified plans is increased to age 73 for persons who reach age 72 after 2022 and age 73 before 2033; and further increases to age 75 for persons who reach age 74 after 2032.17 
  • Required minimum distributions from a designated Roth account in a qualified plan are not required prior to the participant’s death, for distributions related to years after 2023.18 

Catch-up contribution changes 

  • Starting in 2024, participants with annual wages up to $145,000 may make catch-up contributions with respect to both pre-tax and Roth contributions, while participants with wages over $145,000 may make catch-up contributions only with respect to Roth contributions.19  
  • Starting in 2025, the annual catch-up limit for participants ages 60, 61, 62, or 63 at the close of any tax year in a qualified plan is increased from $7,500 (2023 limit, as indexed) at age 50 to $10,000 (or, if greater, 150% of the 2024 annual limit). For SIMPLE plans only, the annual catch-up limit increases from $3,500 (as indexed) at age 50 to $5,000 (or, if greater, 150% of the 2025 annual catch-up limit). Special indexing rules apply.20 
  • Starting in 2024, the annual $1,000 catch-up limit for IRAs will be indexed for the cost of living.21  

Permissible emergency distributions added

In lieu of the disaster-by-disaster approach in current law, Congress has added permanent rules for plan loan and distributions related to federally declared disasters.22  Key features of the new provisions are:

  • Up to $22,000 may be distributed to a participant per disaster,
  • The amount of income included can be spread over three years,
  • Amounts distributed may be repaid within three years,
  • Increased the maximum dollar amounts on a disaster related loan to $100,000 and 
  • Waives the normally applicable 10% penalty on amounts included in income.

These rules are effective for disasters occurring on or after Jan. 26, 2021.

Domestic abuse provisions

Starting in 2024, special provisions have been added to benefit victims of domestic abuse,23  including the following:

  • This will be a permitted in-service distribution event for 401(k), 403(b), and governmental 457(b) plans.
  • The victim may take a penalty-free early withdrawal of up to the lesser of $10,000 (indexed) or 50% of the value of the employee’s vested account under the plan.
  • Amounts withdrawn may be recontributed to the plan within three years.

Self-certified emergency personal expenses

Effective Jan. 1, 2024, defined contribution plans including IRAs may permit penalty-free withdrawals of up to $1,000 per year for unforeseeable or immediate financial needs relating to personal or family emergency expenses.24  Similar to other provisions in the Act, the taxpayer may repay the withdrawal within three years. However, only one withdrawal per three-year repayment period is permitted if the first withdrawal in the period has not either been repaid or the recipient has not contributed as a current contribution at least the amount of the withdrawal to the plan.

Emergency savings accounts

The Act also sends up a trial balloon allowing participants to open “pension-linked emergency savings accounts”25 in qualified plans by making separately accounted for contributions capped annually at $2,500, subject together with other participant deferrals to the section 402(g) limit ($22,500 for 2023, as indexed), section 408(p)(2)(E) ($15,500 for 2023, as indexed) and section 457(b)(2) ($22,500 for 2023, as indexed)). 

SIMPLE and SEP plan enhancements

  • Starting in 2023, Roth contributions are permitted in SIMPLE IRA and SEP-IRA plans;26 
  • Starting in 2024, the prohibition on additional employer contributions to SIMPLE IRA plans is eliminated and additional employer contributions of up to 10% are permitted, capped at $5,000 per participant, in addition to the required matching or 2 percent of pay elective noncontribution.27  
  • The annual SIMPLE IRA contribution limits are increased for employers who have not maintained another qualified plan for the prior three years to 110% of the 2024 limit with respect to any annual contribution and catch-ups contributions (1) for employers of not more than 25 employees; and (2) for larger employers (26 to 100 employees) who make a matching contribution of at least 4% or a nonelective employer contribution of at least 3%;28 and  
  • Employers may terminate and replace a SIMPLE IRA plan with a safe-harbor 401(k) or 403(b) plan pursuant to specified transition rules, with relief from the two-year withdrawal limitation otherwise applicable to SIMPLEs. 29

Additional tax-return due date deadlines

Starting with plan years beginning after the date of enactment, 

  • The deadline for adopting retroactive discretionary plan amendments to increase participant plan benefits is extended to the employer’s tax return due date, rather than the last day of the plan year in which the amendment is effective. This does not apply to an amendment to increase matching contributions.30 
  • An individual who owns the entire interest in an unincorporated trade or business (i.e., a sole practitioner or single-member LLC) with no other employees has until the tax return due date (without regard to extensions) of the plan’s initial plan year to contribute elective deferrals for such year.31

Conclusion

The Act will require significant adjustments for employers, participants, and third-party administrators in providing retirement benefits. Such adjustments will require extensive IRS and DOL guidance and a revamping of third-party administrator and pre-approved sponsor plan documents, policies and administrative systems. Employers may have heavier administrative burdens and increased costs, as well as greater responsibility for keeping employee census data current and for promptly communicating any updates to payroll providers and third-party plan administrators. Finally, participants will require increased plan education and technology training to take advantage of tax-favored benefits available as a result of the Act and to avoid any pitfalls it may have created. Participants and beneficiaries may also wish to update their estate plans to account for differences in the amount and timing of retirement plan distributions. 


1 HR 2617.

2 The Act generally amends the Internal Revenue Code of 1986, as amended (IRC); and the Employee Retirement Income Security Act of 1974, as amended (ERISA).

3 See generally, IRC section 72(t).

4 See, e.g., Act section 120. Exemption for Certain Automatic Portability Transactions; adds new IRC section 4975(d)(24); effective for transactions occurring on or after 12 months from enactment; Treasury to issue regulations within 12 months of enactment, report to Congress within 2 yrs. of enactment; and Act. section 127. Pension-Linked Emergency Savings Accounts; adds a new ERISA section (3)(45) and Part 8; effective for plan yrs. beg. after Dec. 31, 2023, effective for plan yrs. beg. after Dec. 31, 2023; Treasury must report to Congress within 7 yrs. of enactment on efficacy and use of these accounts.

5 Act section 101. Expanding automatic enrollment in retirement plans; adds a new IRC section 414A; effective for plan years beginning after Dec. 31, 2024. 

6 Act section 102. Modification of credit for small employer pension plan startup costs; amends IRC section 45E(e)(3)(A); effective for taxable years beginning after Dec. 31, 2022.

7 Act section 110. Treatment of Student Loan Payments as Elective Deferrals for Purposes of Matching Contributions; amends IRC sections 401(m), 408(p)(2), 457(b), 403(b)(12)(A); effective for contributions made for plan years beginning after Dec. 31, 2023.

8 Act section 604. Optional Treatment of Employer Matching or Nonelective Contributions as Roth Contributions; amends IRC section 402A; effective for contributions made after date of enactment.

9 Act section 125. Improving Coverage for Part-Time Workers; amends ERISA sections 202, 203(b); IRC sections 401(k)(2)(D)(ii), 403(b)(12), 401(k)(15)(B)(i); effective for plan years beginning after Dec. 31, 2024, except that the provisions relating to pre-2021 service for vesting and top-heavy clarification are effective for plan yrs. beg. after Dec. 31, 2020. 

10 Act section 113. Small Immediate Financial Incentives for Contributing to a Plan; amends IRC sections 401(k)(4)(A); 403(b)(12)(A); 4975(d)(23); ERISA section 3(21); effective for plan years beginning after date of enactment. 

11 Act section 304. Updating Dollar Limit for Mandatory Distributions; amends ERISA section 203(e)(1), IRC sections 401(a)(31)(B)(iii), 411(a)(11)(A); effective for distributions made after Dec. 31, 2023.

12 Act section 305. Expansion of Employee Plans Compliance Resolution System (EPCRS); amends IRC sections 401(a), 403(a), 403(b), 408(p) and 408(k)) and expands the EPCRS (Rev. Proc. 2021-30); effective upon date of enactment. The IRS is directed to revise Rev. Proc. 2021-30 not later than 2 years after enactment.

13 Id.

14 Act section 106. Multiple Employer 403(b) Plans; adds a new section403(b)(15); effective for plan yrs. beg. after Dec. 31, 2022.

15 Act section 312. Employer may rely on employee certifying that deemed hardship distribution conditions are met; adds a new IRC sections 401(k)(14)(C), 403(b)(7) and (b)(11), 457(d); effective for plan years beginning after the date of enactment.

16 Act section 128. Enhancement of 403(b) Plans; amends IRC section 403(b)(7)(A); effective for amounts invested after date of enactment. 

17 Act section 107. Increase in Age for Required Beginning Date for Mandatory Distributions; amends IRC sections 401(a)(9), 408(b); effective for required minimum distributions made after Dec. 31, 2022, for individuals who attain age 72 after that date.

18 Act section 325. Roth Plan Distribution Rules; adds a new IRC section 402A(d)(5); effective for tax years beginning. after Dec. 31, 2023. 

19 Act section 603. Elective Deferrals Generally Limited to Regular Contribution Limit; adds a new IRC section 414(v)(7), amends IRC sections 402(g)(1), 457(e)(18)(A)(ii); effective for tax years beginning after Dec. 31, 2023.

20 Act section 109. Higher Catch-up Limit to Apply at Age 60, 61, 62, and 63; amends IRC section 414(v)(2); effective for tax years beginning after Dec. 31, 2024.

21 Act section 108. Indexing IRA Catch-up Limit; amends IRC section 219(b)(5)(C); effective for tax years beginning after Dec. 31, 2023.

22 Act section 331. Special Rules for Use of Retirement Funds in Connection with Qualified Federally Declared Disasters; adds a new IRC section 72(t)(M); effective for disasters occurring on or after Jan. 26, 2021.

23 Act section 314. Penalty-Free Withdrawal from Retirement Plans for Individual in Case of Domestic Abuse; adds a new IRC section 72(t)(2)(K); effective for distributions made after Dec. 31, 2023.

24 Act section 115. Withdrawals for Certain Emergency Expense; adds a new IRC section 72(t)(I); effective for distributions made after Dec. 31, 2023. 

25 Act. section 127. Pension-Linked Emergency Savings Accounts; adds a new ERISA section (3)(45) and Part 8; effective for plan years beginning after Dec. 31, 2023.

26 Act section 601. SIMPLE and SEP Roth IRAs; amends IRC section 408A; effective for tax years beginning after Dec. 31, 2022.

27 Act section 116. Allow Additional Nonelective Contributions to SIMPLE Plans; amends IRC section 408(p)(2)(A); effective for tax years beginning after Dec. 31, 2023. 

28 Act section 117. Contribution Limit for SIMPLE Plans; amends IRC section 408(p)(2)(E); effective for tax years beginning after Dec. 31, 2023. 

29 Act section 332. Employers Allowed to Replace SIMPLE Retirement Accounts with Safe Harbor 401(k) Plans During a Year; adds a new IRC section 408(p)(11); effective for plan years beginning after Dec. 31, 2023.

30 Act section 316. Amendments to Increase Benefit Accruals Under Plan for Previous Plan year Allowed Until Employer Tax Return Due Date; adds new section 401(b)(3); effective for amendments applicable to plan years beginning after Dec. 31, 2023.

31 Act section 317. Retroactive First-Year Elective Deferrals for Sole Proprietors; amends IRC section 401(b)(2); effective for amendments applicable to plan yrs. beg. after date of enactment. 


This article was written by Bill O’Malley, Joni Andrioff, Catherine Davis, Lauren Sanchez, Chloe Webb and originally appeared on 2023-01-06.
2022 RSM US LLP. All rights reserved.
https://rsmus.com/insights/tax-alerts/2023/Key-takeaways-employers-under-SECURE-2-Act-2022.html

The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each are separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/aboutus for more information regarding RSM US LLP and RSM International. The RSM(tm) brandmark is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Perry & Associates CPAs, A.C. is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise, and technical resources.

For more information on how Perry & Associates CPAs, A.C. can assist you, please contact us.