10 AM, 22 December 2022 Updated 23 December 2022
The bill is going to pass but the 1099K amendment proposed by Senators Bill Hagerty (TN, R) and Joe Manchin (WV, D) has failed.  But, the IRS has granted a 1 year reprieve, so it won't be 2023 taxes are filed that this provision will kick in.

Remember when I said this was going to be a relatively good time to do tax planning, because unless Congress speeds things up, there won’t be any changes to our tax rules about which we are unaware for three years.  And, that means we can really do some short to medium range planning to minimize the tax bills we have to pay.

Well, I also said that there was a strong impetus among many of our elected officials to improve the retirement and savings capabilities of our lower middle class.  After all, about ½ of us don’t have sufficient funds to cover our retirement needs.  So, these provisos were being developed to help us survive retirement and have funds for emergencies- but it was unclear if Congress would get its act together and pass a bill..

But, it just might happen.   If we delve into the massive (forget about the claims that Obamacare (PPACA) was a BIG bill- this spending bill covers 4155 pages- about 5X the size of PPACA)  $1.7 trillion spending plan to cover 2023, we can see some pretty specific changes in retirement (and even health care) provisions.  (It’s been claimed to be the biggest change to retirement provisions in 15 years.)

Again- this whole bill has to pass by Friday.  Tomorrow. But, here are the provisions that are envisioned should this massive package get the go-ahead.

Retirement fund changes

You will participate:  Most businesses will have to enroll their employees in 401(k) plans by 2025. And, from 3 to 10% of their wages will be impressed into that retirement plan.  (The contribution will augment by 1% per year until the 10% [and maybe 15%] withholding rate is attained.)  Exempt businesses are those with 10 or fewer employees, have not yet been in operation for 3 years, or are church or government entities.

Catch up? To up the funds we save for retirement, older workers will get even high waivers for their maximum contributions.  Folks 50 and older can add $ 7500 more a year to their plans in 2023, and that would rise to some $ 11250 per annum those aged 60 to 63 starting in 2025.

The Match game: Should an employees wages be under $ 71K per annum, the Federal government will provide a 50% match for the first $ 2000 in contributions to the plan.  That means the Feds shall provide $ 1K directly into the retirement plan.  (That is 1/2 of the $2000.)   Except this funding is a initially just a tax credit- which means if the individual doesn’t owe any taxes, there will be no $ 1K contribution. Until 2027, when the Feds will provide the $ 1000, even if there is no tax liability.

Penalty-free withdrawals: Instead of a 10% tax on withdrawals from the plan, participants get a one-shot withdrawal from the plan for unexpected or immediate expenses for family or personal needs.  The withdrawal can’t exceed $ 1K; if the withdrawal gets repaid, then this can be done annually.  Otherwise, for those who don’t pay back the money, they are only entitled to one withdrawal every three years.  (Come on- you know this was developed to make sure the employee is not trying to glom onto the match the Feds provide the plan.)

There’s another penalty-free withdrawal of sorts, modeled on the ones we let folks take during the pandemic. For the terminally ill, victims of domestic abuse, to cover certain long-term-care insurance premiums, and those in federally-declared disaster regions, penalty-free withdrawals of up to $ 22500 can be made.  And, the income tax due (not the penalty, since there isn’t any) for that withdrawal must be paid back over a three (3) year period.

That $ 400 emergency expense for which we lack funds:  Remember that survey that shocked us- that 60% of us lacked emergency funds to cover an emergency expense of $ 400.  This is why an emergency savings plan is being developed.  This would be offered to lower-paid employees (and linked to the retirement plan).  Employers could opt to place the ‘retirement contribution’ for their staff into the savings accounts, with 3% of their salary.  The maximum funding for this emergency account would be $ 2500.  (Additional employer funds only get routed to the retirement plan.)

What about part-timers?  New rules for these folks, too.  The law now stipulates they participate if they work 1 year at ½ time (that means 1000 hours) or three years with 500 hours (minimum) per year.  The change will cut the 3 year requirement to 2 years.

Roth 401(k)’s:  Folks with Roth 401(k)’s contribute money to their retirement plan using after-tax dollars.  This means that they have paid taxes on the money that enters their retirement plan and only pay taxes on withdrawals that have not been in the plan for 5 years. The change in the law means that folks can skip required distributions starting in 2024.

RMD (required mandatory distributions): We recently changed the regs to delay the RMD until one is 72 years of age.  The change will up the age for RMD to 73 next year and then to 75 by 2033. (This is supposedly to ensure that we don’t drain the retirement accounts before we die.  Right now, about 80% of us yank out way more than the RMD- because we need the funds.)

There’s even a student loan provision!  The thinking is those that need to pay their student loan debt  lack sufficient ability to fund their retirement plans, which means they will never get any matching contributions.  So, the new provision lets employers contribute to the retirement fund based upon the student loan payment the employee is making.

529 Conversions:  For  those folks who have had an extant 529 plan (College Savings Plan that are state tax exempt) for 15 years could roll $ 35000 of those funds into a Roth IRA (subject to the standard Roth contribution limits).

Health Care Provisions 

Indian Health Service:    A big push was made by Native Americans to finally get some decent health care for the 2.6 million American Indians and Alaskan Native Peoples.  The bill provides them with an “advance” appropriation.  The program will receive both its 2023 and 2024 funding at once, so when Congress fails to pass a timely budget bill next year, the IHS won’t be starved for funding.

Suicide Prevention (988 calls):  After the paltry funding we gave this new program this year, this bill ups the budget by nearly $ 400 million, creating a $ 502 million budget. This should help create – and stand up- the mobile crisis teams that are needed to make 988 a useful program.

Buprenorphine administration: The bill allows prescribing buprenorphine to opiod addicts. (Includes a DEA waiver.)

Follow-up control on accelerated drug approvals:  You probably don’t know this, but when a drug gets an expedited approval, there are routine follow-up studies required to render the approval more permanent.  Too many of the manufacturers fail to submit said data and the pathway to remove the drug when that happens is not terribly clear- or stringent.  Now, there will be provisions to ensure compliance.

Paxlovid and other COVID-19 scrips:  The law will provide Medicare the mandate to cover the voluntary prescription drug benefit- even if these drugs only have emergency use authorization.  (Without this provision, the Feds will stop covering the cost of the drugs- leaving Americans at risk.)

The CDC Director is now subject to Senate Confirmation:  You probably didn’t know this either, but the head of the CDC has been strictly the choice of our President. (The FDA and NIH directors are both Senate confirmed.) So, starting with the swearing in of the next President (20 January 2025), the CDC Director will be submitted to the US Senate for its approval.

Let’s see what happens tomorrow.

 

Today is the 4th day of Chanuka.  May the Festival of Lights illuminate your life and your soul.