What Is PL 117-328? Key Tax and Retirement Changes

On December 29, 2022, the Consolidated Appropriations Act, 2023 (Public Law 117-328) was signed into law. While this omnibus bill’s primary function was to allocate funding for the federal government, it also incorporated substantial changes to tax regulations and retirement savings frameworks. A major component of the law is the collection of retirement reforms known as the SECURE 2.0 Act of 2022.

Sweeping Changes to Retirement Plans

A major component of Public Law 117-328 is the SECURE 2.0 Act of 2022, which introduces considerable adjustments to retirement savings. One of the most widely discussed changes is the modification of the age for Required Minimum Distributions (RMDs). The law increases the age at which account holders must begin taking withdrawals from their retirement accounts from 72 to 73, effective January 1, 2023, and schedules another increase to age 75 starting on January 1, 2033.

For individuals who turned 72 in 2023 or later, their first RMD is now due by April 1 of the year after they turn 73. Those who reached age 72 in 2022 or earlier must continue taking their RMDs according to the previous rules. Additionally, beginning in 2024, the law eliminates the pre-death RMD requirement for Roth accounts within employer-sponsored plans like 401(k)s, aligning them with the rules for Roth IRAs.

The rules for catch-up contributions have also been updated. Starting in 2025, individuals aged 60 through 63 will be permitted to make larger catch-up contributions. The limit for these contributions will be the greater of $10,000 or 50% more than the standard catch-up amount for that year, with the amount indexed to inflation in subsequent years.

A notable change affects high-income earners making catch-up contributions. Beginning in 2026, employees with wages exceeding $145,000 in the preceding calendar year must make any catch-up contributions to a Roth account. This means the contributions will be made on an after-tax basis, though qualified distributions in retirement will be tax-free. The initial effective date for this rule was delayed by the IRS from 2024 to 2026.

SECURE 2.0 also introduces new options for employers to contribute to their employees’ retirement security. Employers are now permitted to offer matching contributions as Roth contributions. This gives employees the option to have their employer match directed to a Roth account, where it will grow tax-free, although the match itself is treated as taxable income in the year it is made.

To assist employees burdened by student loan debt, the law allows employers to “match” qualified student loan payments with contributions to a retirement account. Effective for plan years after December 31, 2023, this provision enables employees who are paying down student loans to receive employer matching funds in their 401(k) or similar plan, even if they are not making direct contributions themselves.

To address short-term financial needs, the law authorizes the creation of pension-linked emergency savings accounts (PLESAs). Starting in 2024, employers can offer these accounts as part of their defined contribution plans, allowing non-highly compensated employees to contribute up to $2,500 on a Roth basis. Participants can take tax-free and penalty-free withdrawals from their PLESA for any reason.

The rules surrounding Qualified Charitable Distributions (QCDs) have been expanded. Taxpayers aged 70½ and older can make direct, tax-free transfers from their IRAs to eligible charities, with an annual limit of $108,000 for 2025. The law also introduced a one-time opportunity for individuals to use a QCD to fund certain split-interest entities, such as a charitable gift annuity, with a separate limit of $54,000 for 2025.

Finally, the law broadens the use of automatic enrollment in workplace retirement plans. For new 401(k) and 403(b) plans established after December 29, 2022, automatic enrollment of eligible employees is required, starting in 2025. The initial automatic contribution rate must be at least 3% but not more than 10%, with an annual automatic increase of 1% until it reaches at least 10%, but no more than 15%.

Business Tax and Credit Modifications

The Consolidated Appropriations Act, 2023, also brought forth several modifications to business-related tax rules and credits. These changes affect how companies calculate their tax liabilities and plan their financial strategies.

One of the most significant business provisions relates to the tax treatment of research and experimental (R&E) expenditures. A rule from the Tax Cuts and Jobs Act of 2017 took effect for tax years beginning after December 31, 2021, that requires companies to amortize their R&E costs over five years, rather than deducting them immediately. While Public Law 117-328 did not repeal this rule, its inclusion in discussions highlighted widespread concern over its economic impact.

The act also contained provisions impacting specific industries. It included extensions and modifications of tax credits aimed at promoting renewable energy and green technology. These credits are designed to encourage investment in areas like biofuel production, alternative fuel, and energy-efficient homes, providing a clearer runway for planning future projects and investments.

Updates to Conservation and Charitable Rules

Public Law 117-328 introduced targeted updates to rules governing conservation easements, aiming to clarify regulations and curb perceived abuses. The changes focus on tightening the requirements for certain types of conservation donations.

A central feature of the law is the implementation of stricter limitations on syndicated conservation easements. These transactions involve promoters who syndicate ownership interests in a piece of land to multiple investors, who then claim a charitable deduction. The legislation imposes new rules to disallow a charitable deduction for contributions made by partnerships if the amount of the deduction exceeds 2.5 times a partner’s basis in the partnership.

This provision is designed to shut down transactions that the IRS has identified as potentially abusive tax shelters. The changes are intended to ensure that the tax benefits for conservation easements are reserved for genuine philanthropic donations. These new rules apply to contributions made after the date of the law’s enactment.

Other Tax Adjustments for Individuals

Beyond the major retirement and business provisions, the act included a variety of other tax adjustments that directly affect individual taxpayers.

One notable provision relates to the tax treatment of certain disaster relief payments. The law provides that qualified disaster relief payments made to individuals are excluded from their gross income. This ensures that assistance received to cover necessary expenses as a result of a federally declared disaster is not subject to federal income tax.

The act also made adjustments to rules for Achieving a Better Life Experience (ABLE) accounts. These are tax-advantaged savings accounts for individuals with disabilities. The new law increases the age threshold for when an individual’s disability must have occurred from 26 to 46, effective for taxable years beginning after December 31, 2025.

Additionally, the legislation addressed the tax reporting requirements for third-party payment networks. A rule was set to take effect that would have lowered the reporting threshold for transactions on platforms like PayPal or Venmo to $600. The IRS has since delayed the implementation of the lower threshold, setting it at $5,000 for the 2024 tax year and a planned $2,500 for 2025.