Tax rules around retirement accounts changed significantly in 2022, and many of those changes are still catching people off guard. If you have a 401(k), an IRA, or you’re close to retirement age, there’s a good chance at least one of these updates affects you.
Here’s what’s causing the most confusion, and what to double-check before you file.
Under the old rules, you were required to start withdrawing money from your retirement accounts at age 72. That age is now 73, thanks to recent tax law changes, but a lot of people haven’t gotten the memo.
If you’re in your early 70s and haven’t started taking withdrawals yet, it’s worth confirming when you need to start. Getting it wrong can trigger a penalty. The good news: the penalty used to be 50% of the amount you missed. Now it’s 25%, or as low as 10% if you fix it quickly. Still, it’s money you don’t want to lose.
Starting this year, people aged 60 to 63 can make larger catch-up contributions to their 401(k)s, contributing up to $11,250 annually, compared to the $7,500 limit available to everyone else over 50.
It’s a meaningful opportunity, especially if you’re trying to boost your savings before retirement. The catch: some employers haven’t updated their systems yet to allow the higher amount. If you tried to contribute the maximum and something seems off, check your W-2 (look at Box 12) to confirm the right amount was recorded. If it doesn’t look right, follow up with your HR or plan administrator before filing.
This one is surprising a lot of people. Employers can now offer their matching contributions as Roth contributions, meaning the money goes in after tax instead of pre-tax. Some companies have already made this switch; others haven’t.
If your employer made this change and you didn’t realize it, you could be looking at a higher taxable income this year than expected. If your income number looks higher than it should, this is worth looking into.
If you started a new 401(k) plan for your business after December 29, 2022, you may be required to automatically enroll employees starting in 2025. Under the new rules, the minimum enrollment rate is 3%, and must increase by 1% each year until it reaches at least 10% (but no more than 15%).
That said, there are exceptions. The requirement doesn’t apply to businesses with 10 or fewer employees, businesses that have been operating for less than three years, or government or church plans. If your business doesn’t qualify for an exception and you haven’t looked into this yet, now is a good time.
Missing the requirement isn’t the end of the world. There are ways to fix it, and it’s easier to address proactively than after the fact.
With TaxNow, you can pull your Wage & Income transcript and see exactly what the IRS has recorded for your retirement accounts. Catching a discrepancy before you file is a lot easier than dealing with it after. For a year with this many moving pieces, it’s worth the extra step.
The retirement rules have changed more in the last few years than they have in decades. The good news: most issues are easy to fix if you catch them early.
