Broker Check

Elite Alert: Congress Passes SECURE Act 2.0

Mark Burgdorf, Certified Wealth Strategist®, Accredited Investment Fiduciary®

On December 23, 2022, with the clock ticking, Congress passed the SECURE 2.0 Act of 2022 as part of the Consolidated Appropriations Act, 2023, a $1.65 trillion omnibus spending package to keep the government running. The new retirement legislation, while not the game changer the original SECURE Act was, makes significant alterations to the retirement account rules. Many of these changes impact workplace plans rather than IRAs. It is important to note that not all provisions are effective immediately or even in 2023. Some do not apply until 2024, and some not for a decade! Of the 90+ changes, here are some of the key impacts:

  • RMD Age Increase: The age for required minimum distributions (RMDs) is increased to 73 starting in 2023. This age will increase to 75, but not until January 1, 2033. Anyone currently subject to RMDs under the old 70 ½ or 72 RMD age rules must continue to follow their existing RMD.

  • QCDs Expanded: Starting in 2023, a one-time only, $50,000 QCD to a charitable gift annuity, charitable remainder unitrust, or a charitable remainder annuity trust will be allowed. Also, the QCD limit of $100,000 will be indexed for inflation starting in 2024.

  • Roth Changes: Unlike Roth IRAs, Roth accounts in workplace plans have been subject to RMDs during the owner’s lifetime. Beginning in 2024, this will no longer be the case as Roth assets in a plan will be exempt from lifetime RMDs.

    The trend toward “Rothification” continues as Congress seeks immediate tax revenue. SEP and SIMPLE plans can allow Roth contributions beginning in 2023. Further, all plan catch-up contributions for age 50-or-over higher income employees must be Roth contributions, starting in 2024. Finally, beginning immediately, plans can allow employer-matching contributions to be made on a Roth (after-tax) basis.

  • 529 Plans: Effective in 2024, beneficiaries of 529 college savings accounts are permitted to roll over up to $35,000 over the course of their lifetime from a 529 account in their name to their Roth IRA. These rollovers are subject to Roth IRA annual contribution limits, and the 529 accounts must have been open for more than 15 years. If a 529 beneficiary has found an alternative way to pay for his education, this new rule will allow any “leftover” funds in the plan to avoid tax or penalty if rolled over.

  • 10% Penalty Exceptions: A slew of new 10% penalty exceptions has been added, all of which have different effective dates. These include distributions for terminal illness (effective immediately), federally declared natural disasters - $22,000 limit (effective retroactively to 1/26/21), pension-linked emergency savings accounts - $2,500 limit (2024), domestic abuse - $10,000 limit (2024), financial emergencies - $1,000 limit (2024), and long-term care - $2,500 limit (effective three years from the date the new law is signed).

  • Missed RMD Penalty Reduction: Effective in 2023, the penalty for failure to take an RMD is reduced from 50% to 25%. If the missed RMD is corrected in a timely manner, the penalty is further reduced to 10%.

  • What’s NOT in this Act: There is no fix to the “at least as rapidly rule” for those beneficiaries subject to RMDs for years 1-9 under the 10-year rule when death is on or after the RBD (required beginning date). Congress could have easily corrected that here, but it chose not to. So, it seems more likely the IRS will keep this complicated RMD rule in place when it issues final regulations.