IRA & Solar
IRA
More retirement-savings changes are likely. In late 2019, when lawmakers passed the SECURE Act to help participants in workplace plans and IRA owners bulk up retirement savings, they promised to do more. SECURE 2.0 has easily passed the House with strong bipartisan support. The bill is sponsored by Reps. Richard Neal (D-MA) and Kevin Brady (R-TX), the two men who spearheaded passage of the 2019 law. Odds of this or a similar bill becoming law: Very good. But the key question is when. The original SECURE Act took about seven months from House passage to enactment. Advocates hope that the timeframe isn’t as long this year, but it’s a given the Senate won’t act quickly.
Let’s look at what is in SECURE 2.0. Among the bill’s many easings: Raising the age for first taking required minimum distributions from 72 to 73 in 2023, 74 in 2030 and 75 in 2033. Letting people ages 62 to 64 stash more money in 401(k)s and SIMPLEs. Annually indexing to inflation the $1,000 IRA catch-up limit for people 50 and up, and the $100,000 cap for qualified charitable distributions from traditional IRAs. Enhancing the saver’s credit that low- and middle-incomers claim for retirement payins. Requiring employers to offer automatic enrollment in their 401(k) or 403(b) plans with employee opt-out, subject to key exceptions. Letting firms offer student debt relief through workplace retirement plans. Lowering the excise tax for account owners who fail to take RMDs. Simplifying rules for retirement plans. Plus creating an online national database for lost accounts.
Two main revenue-raising ideas would help offset the cost of the bill. The first would require that catch-up contributions to workplace retirement plans, such as 401(k)s, be subject to Roth treatment. This means that the extra $6,500 contributed by workers age 50 or older would automatically go into a Roth 401(k) and come from post-tax salary rather than pretax wages. Another provision would allow workplace retirement plans to give participants the option of having any employer matching contributions put into Roth 401(k) accounts.
One thing not in the bill: Requiring firms to offer payroll-deduction IRAs and enroll employees who don’t opt out. House Democrats put forth such an idea last year, supported by President Biden, but the proposal ended up going nowhere. It would have required employers with more than 10 employees and in business for at least two years to offer their workers an automatic IRA option if the firm had no other retirement plan. Noncomplying firms would be hit with an excise tax.
States are taking the lead on this. 14 states have enacted legislation to require employers without retirement plans to offer their workers automatic IRAs funded solely with employee payroll deductions. States with automatic IRA programs either in place or in the pre-implementation phase are Calif., Colo., Conn., Ill., Maine, Md., Mass., N.J., N.M., N.Y., Ore., Vt., Va. and Wash. Expect more to come on board, especially now that the Supreme Court declined to hear a case threatening Calif.’s law.
Solar
Thinking about adding solar panels to your home? You can get a tax break for part of the cost of solar panels, solar-powered water heaters and the like installed in a primary residence or vacation home. The credit equals 26% of the cost of the equipment and installation. It falls to 23% in 2023 and expires in 2024. You only get it once the system has been installed. If you buy solar panels late this year but don’t put them in until 2023, you can’t claim the 26% credit on your 2022 return. You’ll have to wait and take a 23% credit when you file your 2023 return in 2024. If you install solar panels and get a rebate from your utility company… It will affect your credit amount. Although the rebates aren’t taxable income, the cost of the panels is reduced by the rebate amount when you figure your credit. You’re out of luck if you put in energy-saving windows and doors this year. The limited tax credit for these residential energy-efficient items lapsed after 2021. Odds are waning that this break will be extended and perhaps expanded by Congress.