How SECURE 2.0 Act affects your retirement accounts
On Dec. 23, Congress passed the SECURE 2.0 Act of 2022 as part of the Consolidated Appropriations Act, 2023.
The new legislation makes significant changes to the retirement account rules. Many of these changes affect workplace plans rather than IRAs. Not all of the changes are effective immediately. Some apply in 2024, and some will not be effective for a decade.
What follows are the key changes, according to Ed Slott and Co. (www. irahelp.com).
RMD age increase: The age for required minimum distributions (RMDs) increased to 73 starting in 2023. The age limit changes to 75 as of Jan. 1, 2033. If you are subject to the old 70 ½ or 72 RMD age rules, you should continue to follow existing RMD schedules.
Qualified charitable deduction expansion:
Starting in 2023, on a one-time only basis, $50,000 can be contributed to a charitable gift annuity, a charitable remainder unitrust or a charitable remainder annuity trust. The QCD limit, which had been $100,000, will be indexed to inflation starting in 2024.
Roth changes: Roth accounts in workplace plans had been subject to RMDs during the owner’s lifetime. Starting in 2024, this will no longer be required, as assets in a workplace plan will be exempt from lifetime RMDs. Roth accounts outside of the workplace will still be subject to lifetime yearly RMDs.
Starting in 2023, Roth contributions can be made to SEP and SIMPLE plans.
Starting in 2024, all plan catch-up contributions for age 50-or-over higher-income employees must be Roth contributions. (This is consistent with Congress’ objective to obtain immediate tax revenue.) Beginning immediately,
529 plans: Starting in 2024, beneficiaries of 529 college savings accounts are allowed to roll over up to $35,000 over their lifetime from a 529 account in their name to their Roth IRA. The 529 account has to be open for more than 15 years, and the rollovers are subject to Roth IRA annual contribution limits. When a 529 beneficiary has found an alternate way to fund his education, this new rule will allow any leftover funds to be rolled over without tax or penalty.
Many new exceptions have been added with different starting dates.
An exception for terminal illness is effective immediately. An exception for federally declared natural disasters is effective retroactively to Jan. 26, 2021. An exception will be permitted for pensionlinked emergency savings accounts, with a $2,500 limit, taking effect starting in 2024; for spending related to domestic abuse, with a $10,000 limit, taking effect in 2024; for financial emergencies, with a $1,000 limit, taking effect in 2024; and long-term care, with a $2,500 limit, taking
10% penalty exceptions:
effect three years from the date the new law is signed by President Biden.
Missed RMD penalty reduction: Effective in 2023, the penalty for failure to take an RMD has been reduced from 50% to 25%. When the RMD is corrected in a timely manner, the penalty is reduced to 10%.
What is not included in the act
The original SECURE Act had indicated that beneficiaries of IRAs were subject to an “at least as rapidly” rule regarding beneficiaries subject to RMDs for years 1-9 under the 10-year rule when death was on or after the required beginning date (RBD.) There has been confusion regarding the interpretation of this rule. Although Congress could have been precise regarding this rule, it chose not to be. So it is up to the IRS to address this issue when it issues final regulations.
Other provisions of this law that affect company plans will be addressed in future columns.