Along with the SECURE 2.0 Act passed in December 2022, tax provisions were incorporated into the Inflation Reduction Act (IRA), which became law in August 2022. Lower-income households will see automatic tax code changes, while higher-income and high-net-worth individuals should review their retirement and estate plans to determine if adjustments are needed. Both new and expiring tax laws impact your current finances, retirement, and legacy planning.
Inflation Reduction Act (IRA)
The IRA tackles various issues, including:
Climate Change
Tax incentives for homeowners to add wind or solar power extend through 2032, with eligible homeowners qualifying for a 30% tax credit. Rebates for new electric or hydrogen fuel cell vehicles also extend to 2032, including a $7,500 tax credit for qualifying new cars and a $4,000 credit for qualifying used electric vehicles.
Healthcare
Subsidies for health insurance under the Affordable Care Act are extended through 2025, and Medicare drug price negotiations are introduced.
Corporate Taxation
Corporations with profits exceeding $1 billion now face a minimum 15% tax based on financial statement income (not taxable income), plus a 1% tax on corporate stock buybacks.
Expanded IRS Enforcement
The IRS will receive $80 billion over ten years to increase audits and strengthen tax enforcement.
SECURE 2.0 Act
The SECURE 2.0 Act, part of the 2023 Consolidated Appropriations Act, updates the original SECURE Act of 2019. It improves retirement savings options through 92 new provisions designed to promote savings, incentivize employers, and increase flexibility. Some provisions take effect immediately; others phase in over several years.
Three Main Goals of SECURE 2.0
- Empower individuals to save more for retirement
- Improve existing retirement rules
- Lower employer retirement plan setup costs
These goals address the retirement savings gap, helping Americans avoid outliving their resources and reducing pressure on federal assistance.
Raising the Required Minimum Distribution (RMD) Age
The RMD age increases from 72 to 73, then to 75 in 2033. The penalty for missed RMDs decreases from 50% to 25% of the undistributed amount. Delaying RMDs can lead to larger withdrawals and higher taxes later. An estate planning or elder law attorney can coordinate tax-efficient distribution strategies with your financial advisor.
Catch-up Contributions
Individuals aged 62 to 64 (or 60 to 63 in some provisions) can make larger catch-up contributions to retirement plans. Most catch-up contributions must be after-tax unless the individual earns $145,000 or less, enabling more tax-advantaged savings while reducing current taxable income.
401(k) Auto-Enrollment
By 2025, employers must auto-enroll employees into workplace retirement plans, with employees opting out if they choose. Auto-enrollment defers 3% to 10% of annual income automatically.
Other Notable Provisions
An estate planning or elder law attorney can help interpret and apply additional provisions, including:
- Retirement contributions despite student loan debt
- 529 Plan rollovers to Roth IRAs
- Changes to Roth employer plans
- Saver’s credit matching
- Penalty-free early withdrawals
- New qualified charitable distribution rules (QCDs)
- Limits on qualified longevity annuity contracts (QLACs)
Tax Laws Set to Expire
Several tax provisions under the 2017 Tax Cuts and Jobs Act (TCJA) will sunset by the end of 2025. Planning before these changes is critical to optimize your retirement and estate planning.
2023 Tax Bracket Changes
- The top tax bracket will rise from 37% to 39.6% for individuals, trusts, and estates.
- The 24% bracket will increase to 28%.
- The 22% bracket will increase to 25%.
- The 12% bracket will increase to 15%.
Maximizing pre-tax retirement contributions before these changes may reduce your current tax liability.
Reduced Unified Gift and Estate Tax Deductions
In 2026, exemptions will drop to an inflation-adjusted $6.8 million, limiting lifetime gifting strategies and impacting estate and wealth transfer planning. Consult an estate planning attorney to adapt your plan accordingly.
Tax-Efficient Planning Amid Economic Uncertainty
Higher inflation and interest rates influence charitable remainder trusts (CRTs) and other strategies. Establishing trusts in this environment can offer unique tax advantages.
Summary
High-net-worth individuals and estates have a limited window to protect wealth amid evolving tax laws. The IRA, SECURE 2.0 Act, and sunsetting provisions require proactive planning. Work with an estate or elder law attorney to fully leverage current laws and safeguard your financial future and legacy.
We hope you found this article helpful. If you’d like to discuss your particular situation, please contact our Sherwood or Searcy office at 501-834-2070 to schedule a consultation. We look forward to the opportunity to work with you.