The Setting Every Community Up for Retirement Enhancement (SECURE) Act brought numerous changes to the retirement and estate planning landscape in late 2019. Congress followed up with the SECURE 2.0 Act in late 2022. This law introduced some additional taxpayer-friendly changes, including an increase in the limits for retirement account catch-up contributions for individuals who are age 50 or older.

The ability to make extra catch-up contributions allows older employees to boost their retirement savings, increasing the odds they’ll have enough money for retirement. However, the new-and-improved catch-up contribution rules have created some concerns that the IRS was forced to address recently. Here’s what you should know.

Catch-Up Contribution Basics

Employer-sponsored 401(k), 403(b) and 457(b) plans can allow participants who are age 50 or older to make additional salary reduction contributions — also known as elective deferral contributions — to their accounts. These catch-up contributions are over-and-above standard salary reduction contributions, which are limited to $22,500 for 2023, with inflation adjustments for later years. For 2023, the maximum catch-up contribution for these employer-sponsored plans is $7,500, with inflation adjustments for later years.

The advantage of making catch-up contributions is that they reduce your taxable salary while also allowing you to save more in your tax-advantaged retirement account. In effect, catch-up contributions are deductible in determining your taxable income.

SECURE 2.0 Provision 

Starting in 2025, for retirement plan participants who attain age 60 through 63, SECURE 2.0 increases the maximum catch-up contribution to the greater of:

• $10,000, adjusted annually for inflation, or
• 150% of the maximum “regular” catch-up contribution amount allowed for 2024.

To be clear, these enhanced catch-up contributions will be allowed for plan participants who reach age 60, 61, 62 or 63 during the year in question. For all other participants who are eligible to make catch-up contributions, including those who attain age 64 or older during the year in question, the “regular” catch-up contribution maximum will continue to apply ($7,500 for 2023).

SECURE 2.0 Change for Higher-Income Participants 

Starting in 2024, participants in 401(k), 403(b) and 457(b) plans whose prior-year wage income exceeds $145,000 (adjusted annually for inflation) can only make catch-up contributions to a company-sponsored designated Roth account. These contributions are after-tax, so they don’t reduce the taxable salary of participants. On the plus side, designated Roth account balances can grow federal-income-tax-free and qualified distributions taken from designated Roth accounts are federal-income-tax-free. A qualified distribution is one that:

• Occurs at least five years after your first contribution to the designated Roth account, and
• Is made after reaching age 59½ or due to disability or death. 

However, if your company doesn’t offer designated Roth account options and your prior-year wage income exceeds $145,000 (adjusted annually for inflation), the SECURE 2.0 change would eliminate your ability to make any catch-up contribution.

Concerns About the Designated Roth Account Change

Not all high-income employees will welcome the designated Roth account change to the catch-up contribution regime. In addition, the looming 2024 effective date for the change and the various administrative hurdles the provision created have caused increasing concerns for employers and payroll service providers. Examples of these concerns include: 

• Employers must identify which employees have wage income above the $145,000 threshold and provide that information to plan administrators, and
• Procedures must be established to restrict catch-up contributions by affected employees to designated Roth accounts, and details about how the new deal works must be communicated to affected employees.

Moreover, as stated above, some employer plans don’t currently offer the designated Roth account option. Affected employees will likely demand this option. That means these employers may need to amend their plans to avert employee discontent. If not, affected employees won’t be able to make any catch-up contributions. But with such amendments to employer plans, all employees would have the option of contributing to designated Roth accounts, which would create more administrative complications.

Transition Period Relief     

In Notice 2023-62, the IRS addresses these concerns by granting relief in the form of a so-called administrative transition period. Under the transition period relief, the effective date for the designated Roth account catch-up contribution change is extended to January 1, 2026. Until then, employers can ignore the SECURE 2.0 change and allow higher-income employees to continue making catch-up contributions that aren’t made to designated Roth accounts.

Important: The IRS has also addressed a drafting glitch in the SECURE 2.0 statutory language that seemingly eliminated the ability for employees to make any catch-up contributions after 2023. Information Release IR-2023-155 states that employees who are age 50 or older can continue to make catch-up contributions in 2024 and beyond. The faulty statutory language is expected to be fixed with a future technical corrections bill in Congress.

Is Your Business Ready for the New Rules? The delayed effective date for the designated Roth account catch-up contribution change is good news, but the change is still scheduled to kick in on January 1, 2026. So, employers are well-advised to start amending their procedures and retirement plans, if necessary, to achieve compliance with the change. Contact your tax advisor to determine what’s appropriate for your company’s situation.

Automotive hacking is on the rise. The number of cyberattacks into vehicle computer systems increased by a staggering 380% from 2021 to 2022, according to Upstream’s 2023 Global Automotive CyberSecurity Report. Don’t buckle up without taking precautions. 

What Is Automotive Hacking?

The term “automotive hacking” refers to attempts by outsiders to use technology to invade the computerized systems of vehicles. Hackers may try to either control the vehicle itself or gain access to sensitive data that they exploit for illicit purposes. They might even attempt to blackmail the owner or auto manufacturer.

Modern vehicles are vulnerable because they contain hundreds of computer chips responsible for processing everything from steering controls to rear window defoggers. The vehicle’s “electronic control units” communicate with each other through multiple networks and communication protocols. Various networks — such as the Controller Area Network facilitating communication affecting braking controls — interact with each other. Other systems accommodate Bluetooth and other wireless device connections.

The integration of these networks and systems, as well as the use of the accompanying software, can put vehicles at risk. The same advanced technology that allows you to talk on the phone hands-free while you’re driving can be exploited by hackers to gain access to your vehicle.

Sometimes hackers target manufacturers rather than individual owners. For example, Toyota recently revealed that a data breach of its system exposed the vehicle location information of more than 2.1 million customers between November 6, 2013, and April 17, 2023.

How Do These Breaches Happen?

There are three primary methods that hackers use to launch their attacks:

1. Physical access to hardware. A hacker canphysically manipulate a vehicle’s technology to circumvent security measures. For instance, they can manually install devices to control vehicle systems from remote locations. Drivers might think they’re in control, but the hacker is really driving the vehicle using remote controls.

2. Software invasion. By locating entry points in software, hackers can seize control of the vehicle systems. Once they take over, they can steal data and use it illegally or even manipulate vehicles from remote locations.

3. Altered lines of communication. In layman’s terms, the various systems in your vehicle communicate with one another or the internet. Hackers can locate valuable information by intercepting or interrupting these communications.

In one popular variation of this scheme, hackers clone the signal coming from a key fob and use the frequency to enter the vehicle. In another, a hacker hijacks a vehicle by using a nearby Wi-Fi hot spot or Bluetooth to connect to a vehicle’s systems.

How Can You Protect Your Vehicle from Cyberattacks?

There’s no 100% foolproof method preventing automotive hacking. But you can take the following steps to shore up your defenses:

Install an anti-malware system. This software is specifically geared to preventing outsiders from taking over control of your vehicle.

Stay current with software updates. It’s easier for hackers to invade your vehicle’s computer systems if the software is outdated. Follow manufacturer guidelines to automate the installation process for your vehicle.

Add a VPN. A Virtual Private Network (VPN) protects your vehicle’s electronic components from malware. It allows you to connect to the internet without any major cybersecurity concerns.

Monitor use of wireless technology. If you track your vehicle remotely with wireless technology, you’re exposing it to potential hacks because those systems operate online.

Exercise caution using key fobs. These devices open the door for automotive hackers. Consider using the metal key inside the fob whenever possible or locking the fob in a box that blocks electromagnetic fields.

Be wary of GPS. Just as a vehicle’s Global Positioning System (GPS) can lead law enforcement to criminals, this system can be exploited by hackers for nefarious purposes.

Count on two-factor authentication. Two-factor authentication is commonly used to secure bank and investment accounts online. So why not use it to protect your vehicle? Similarly, encrypt key fob frequencies and secure logins over mobile apps and servers.

Not Your Grandfather’s Automobile

Today’s vehicles are equipped with technology that provides more versatility and functionality than ever before. But those benefits come with potential risks. The key is staying one step ahead of the hackers.

Do your employees feel like they’re being watched? If they don’t, they may be emboldened to steal. In the same way that putting more police officers on streets tends to reduce crime, making your company’s anti-fraud activities more visible can discourage fraud perpetrators.

Good internal controls are critical to preventing fraud. But many companies have learned the hard way that employees bent on fraud can find their way around internal controls if the incentive outweighs the risk. You must, therefore, make sure that your employees — including senior managers — understand that the risks of committing fraud are greater than the rewards.

Make Your Program Visible

There are a number of ways to increase the perception of detection in your company, but the first is education. An ongoing, visible fraud information program fosters the belief that anyone who commits fraud will be caught, simply by demonstrating that fraud is always on the company radar screen.

Fraud education should begin with employee orientation and continue with ongoing employee training programs. Familiarize employees with your company values and expectations, and train them to know what constitutes fraud. Educated employees aren’t only more likely to notice and report fraud if they spot it, but they’re also less likely to be tempted to perpetrate it.

Setting up a confidential tip line also can help create an environment of vigilance, particularly if you routinely publicize nonspecific statistics about the calls it generates. If, for example, your employee newsletter prints statistics regarding the number of calls received and the actions taken as a result, employees may be more likely to view the hotline as a viable means of reporting suspicious activities. And, again, you’ll communicate that the company takes fraud detection and prevention seriously.

Take It to the Top

While education and hotlines can help drive thoughts of fraud out of the minds of line employees and middle managers, the biggest schemes often stem from people higher in the chain of command. As many high-profile corporate scandals have shown, CEOs and CFOs aren’t immune to the temptation to defraud their companies and their shareholders.

One way to suppress such temptations is to ask senior managers whether they’re aware of any fraud in your organization. CEOs who commit fraud often must enlist an accomplice or two. When financial advisors or auditors ask about fraud during the course of their duties, it puts senior managers on notice that oversight isn’t limited to the rank and file. And there’s always the chance that one of the accomplices will report suspicious activities.

Periodic surprise audits, too, can dissuade upper management from acting on any fraud impulses. While such audits can’t be comprehensive, they can serve as spot checks in high-risk areas such as inventory, sales and accounts receivable. They also can be powerful deterrents to artificial asset inflation or other financial statement falsifications.

Let the Punishment Fit the Crime

Finally, if you find fraud, punish it. Too often, companies worried about the effects of adverse publicity wrap up their fraud investigations with only threats and beefed-up damage control efforts. That does little to convince would-be fraudsters that their activities will bring more pain than gain.

In fact, criminally inclined employees — as well as suppliers, customers and other stakeholders – may interpret a mere hand slap as an invitation to cheat your company.

Fear Factor

Fraud is a risk that can have catastrophic consequences. Send a loud and clear message that fraud will be detected and punished, and you may find you’ve diminished your risk significantly.

There’s more to paying taxes than just federal and state income taxes. Another major tax chore for employers is payroll taxes. These expenditures can be significant, and the reporting requirements can be onerous. So it’s important for small business owners to understand the basics.

First off, employers are required to report and deposit payroll taxes on a regular schedule, typically on a quarterly basis. This includes amounts withheld from employee compensation based on the frequency of payment. Failure to meet these obligations can trigger back taxes, interest and penalties — a veritable tax disaster.

Here’s a quick rundown of six major types of payroll tax obligations that employers must contend with during the year.

1. Federal Income Tax Withholding

Employers are required to withhold federal income tax from the paychecks of their employees. The amount of income tax to be withheld from regular pay depends on two factors:

• The amount of the wages, and
• The information provided on the employee’s W-4.

Additional withholding rules apply to commissions and other forms of compensation. Ask your tax pro for more information.

2. State and Local Income Tax Withholding

Employers generally must withhold state income tax from the wages of employees. However, seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming — have no state income tax. Plus, two states — New Hampshire and Tennessee — don’t tax wages.

In addition, certain cities — including New York City, Detroit, Philadelphia and San Francisco — also impose income taxes. Finally, in several places, withholding is required to cover short-term disability, paid family leave or unemployment benefits.

Important: The withholding requirements are more complicated for employees that live and work in a different state than where their employers are located. (See “Beware: Remote Work May Complicate State Income Taxes” at right.)

3. FICA Tax

The Federal Insurance Contributions Act (FICA) authorized a payroll tax that includes the following components:

Social Security tax. The Old Age, Survivors, and Disability Insurance (OASDI) portion is taxed at a 6.2% rate on the amount up to an annual wage base. The inflation-adjusted base for 2023 is $160,200 (up substantially from $147,000 in 2022).

Medicare tax. The Hospital Insurance (HI) portion of the tax is 1.45% on all wages. There’s no wage base for this component.

For example, say that your company’s CIO earns $200,000 in 2023.The OASDI portion would be $9,932 (6.2% of $160,200), and the HI portion would be $2,900 (1.45% of $200,000). The combined total would be $12,832 ($9,932 plus $2,900). All amounts are rounded to the nearest whole dollar.

Employers withhold the employees’ share from their paychecks, and they’re also responsible for matching the amount withheld.  Thus, in the example above, the employer would have to pay $25,664 ($12,832 times 2).

4. FUTA Tax

Uncle Sam helps states pay employees who have been involuntarily terminated from their jobs. Accordingly, the Federal Unemployment Tax Act (FUTA) created a special tax that applies to the first $7,000 of wages of each employee.

The basic FUTA rate is 6%. However, employers can benefit from a credit for state unemployment tax of up to 5.4%, creating an effective 0.6% FUTA tax rate. This credit may be reduced if a state borrows from the federal government to cover its unemployment benefits liability and doesn’t repay the funds.

5. State Unemployment Tax

States are responsible for paying unemployment benefits to eligible workers who are involuntarily terminated. Much like insurance, the rate that employers pay is based on their claims experience.

The more claims that are made by former employees, the higher an employer’s tax rate will be. The state updates this rate, which can’t fall below a specified minimum, on an annual basis.

6. Additional Medicare Tax

An additional Medicare tax of 0.9% is required to be withheld on all wages above $200,000. Note that while the employee may or may not ultimately be liable for the tax, the employer is still required to withhold it. Unlike FICA, employers don’t have to pay a corresponding amount of the additional Medicare tax.

When the employee files a personal income tax return, the additional Medicare tax is effectively treated the same as other federal withholding. Whether the employee is subject to the additional Medicare tax depends on the total amount of earned income showing on the employee’s personal income tax return. For example, an unmarried individual will be subject to the additional Medicare tax on earned income in excess of $200,000, whereas the threshold for a jointly-filed return is $250,000 of earned income. 

Also, be aware that the six responsibilities outlined above apply only to amounts paid to employees. If your business uses independent contractors, they’re not covered by these rules, although other reporting requirements may apply. 

Other Payroll Tax-Related Issues

That’s far from the end of an employer’s payroll tax requirements. There are several other issues for small business owners to consider.

Notably, payroll taxes must be deposited with the government in a timely manner. The IRS sets the tax deposit deadlines for federal payroll taxes. Most employers fall under the monthly schedule, but larger corporations must deposit taxes on a semi-weekly basis.

As you might expect, there’s some additional paperwork involved. This includes various tax returns that must be filed for federal payroll taxes, such as:

• Form 940, the employer’s annual FUTA tax return, and
• Form 941, the employer’s quarterly tax return reporting withholding and the employer’s share of FICA.

Employers must also report withholding to employees, as well as Social Security tax withholding to the Social Security Administration (SSA). For this purpose, they must send Form W-2 to employees and Form W-3 to the SSA. The latter summarizes all the W-2s sent to employees.

Here’s a little-known secret for parents planning to send their children to college in the future: Some of the tax-saving moves you make now could hurt your student’s chances for getting financial aid later.

That’s because of the way the financial aid system treats different assets. Retirement plans and IRAs don’t count for college aid purposes. You’re not expected to break into these accounts to pay for tuition.Another key point:The college aid formula requires 20% of the assets in your child’s name to be used for college costs. But the government-mandated formula only expects about 5.6% of the money in the parent’s name to be spent. So you’re better off keeping accounts in your own name, especially during the last two years of high school, which is generally when you’ll be asked to start providing tax returns.

Don’t assume you’re not eligible for assistance. With the high cost of college today, many schools now have programs available to relatively well-off families if they meet certain qualifications. For example, your child might be able to get a “merit award” based on high standardized test scores and superior grades.

The best strategy: If you expect to apply for financial aid, don’t hold back placing money in your own retirement plan in order to put away savings in a college account in your child’s name.

Contributions to retirement accounts are usually tax-deductible and the earnings are tax deferred until withdrawn. On top of these tax breaks, your family may also become eligible for more financial aid.

Remember that you can usually tap retirement accounts for college money. Many 401(k) plans allow loans to be taken. And thanks to a tax law that went into effect in 1998, you can generally withdraw a limited amount from your IRAs penalty-free to pay higher education costs for yourself, your children and grandchildren.

You taught them how to read and how to ride a bike, but have you taught your children how to manage money?

Many college students and graduates carry a significant amount of student loan debt. Unfortunately, many of them will either default or be delinquent in repaying those loans, which may affect decisions they make for decades.

For current college kids, it may be too late to avoid learning the hard way. But they may be more open to having financial conversations once they get out in the world. And if you still have children at home, save them (and yourself) some heartache by teaching them the basics of smart money management.

Have the conversation. Many everyday transactions can lead to discussions about money. At the grocery store, talk with your kids about comparing prices and staying within a budget. At the bank, teach them that the automated teller machine doesn’t just give you money for the asking. Show your kids a credit card statement to help them understand how “swiping the card” actually takes money out of your pocket.

Let them live it. An allowance program, where payments are tied to chores or household responsibilities, can help teach children the relationship between work and money. Your program might even include incentives or bonuses for exceptional work. Aside from allowances, you could create a budget for clothing or other items you provide. Let your kids decide how and when to spend the allotted money. This may help them learn to balance wants and needs at a young age, when the stakes are not too high.

Teach kids about saving, investing, even retirement planning. To encourage teenagers to save, you might offer a match program, say 25 cents for every dollar they put in a savings account. Once they have saved $1,000, consider helping them open a custodial investment account, then teach them to research performance and ratings online.

You might even think about opening an individual retirement account (IRA). With the future of Social Security in question, your kids may be on their own to pay for their retirement. Some parents offer to fund an IRA for their children as long as they’re earning a paycheck. Contributions to a traditional IRA may be fully or partially deductible, depending on your child’s situation. Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59 1/2, may be subject to a 10% federal income tax penalty. However, there are exceptions when a taxpayer can avoid the 10% penalty, such as withdrawing money for a first home purchase, up to $10,000 and paying qualified higher education expenses.

As you teach your children about money, don’t get discouraged if they don’t take your advice. Mistakes made at this stage in life can leave a lasting impression. Also, resist the temptation to bail them out. We all learn better when we reap the natural consequences of our actions. Your children probably won’t be stellar money managers at first, but what they learn now could pay them back later in life — when it really matters.