02/04/2023
***CHANGES HAVE BEEN MADE TO REQUIRED MINIMUM DISTRIBUTIONS FROM RETIREMENT PLANS***
The SECURE 2.0 Act was signed into law in December 2022 and is a package of federal policy changes designed to boost retirement savings. Many of the provisions in SECURE 2.0 have been added to the changes made in the SECURE Act of 2019.
What is the SECURE 2.0?
The SECURE 2.0 Act is a bipartisan package of reforms to retirement
policy passed by Congress and signed into law by President Biden
in December 2022. The provisions made in the law are designed to boost savings for low- and middle-income Americans, increase participation in employer-sponsored retirement plans, provide more flexibility to savers, and reduce regulatory barriers for annuities in retirement plans.
Some changes take effect starting in 2023, such as raising the age at which individuals must begin taking Required Minimum Distributions (RMDs). However, most of the provisions will not take effect until 2024 or later.
What provisions in SECURE 2.0 take effect in 2023?
• Increases required age to begin RMDs. Like the SECURE Act of 2019, SECURE 2.0 once again raises the age at which an individual must begin Required Minimum Distributions. For individuals who turn 72 in 2023, the required beginning age for RMDs increases from 72 to 73. In 2033, the age increases again to 75.
Year of Birth RMDs begin at age...
1950 or earlier 72
1951 to 1959 73
1960 or later 75
• Provides exception to early withdrawal penalty for individuals
with terminal illness. Effective immediately, SECURE 2.0 adds an
exception to the 10% early withdrawal penalty for withdrawals due
to documented “terminal illness,” which is defined as an illness that
can be expected to result in death within 84 months of diagnosis.
This provision does not alter annuity surrender charges – it only
applies to tax penalties.
• Allows SIMPLE and SEP IRAs to be Roth beginning in 2023.
• Reduces the RMD excise tax that is applied when a distribution is not taken or is not large enough from 50% to 25%. Further reduces tax to 10% if the RMD that should have been received is taken during the defined “correction window.” Effective for tax year 2023.
What provisions in SECURE 2.0 take effect in 2024 or later?
• 529 transfers to Roth IRAs. Beginning in 2024, a transfer of funds from a 529 savings accounts into the plan beneficiary’s Roth IRA will be allowed. Transfers are only available for 529 plans maintained for over 15 years, and contributions made to a 529 in the previous 5 years and earnings on those contributions are ineligible for transfer. TAKE NOTE: A 529 transfer is included in the annual contribution limit for the IRA, and there is a maximum lifetime transfer limit of $35,000. However, Roth IRA income limitations do not apply to 529 transfers.
• New options for surviving spouse beneficiary. Effective in 2024, additional options for a surviving spouse beneficiary who inherits a retirement account, including the ability to calculate RMDs using the Uniform Lifetime Table rather than the Single Lifetime Table will be allowed. This would reduce RMDs for surviving spouses.
• Indexes IRA catch-up contribution limits to inflation. Under current law, individuals age 50 and older can make IRA catch-up
contributions up to $1,000. SECURE 2.0 indexes this limit to inflation beginning in 2024.
• Clarification of rules for substantially equal periodic payments, or 72(t) payments. Allows partial rollover or transfer from an account making 72(t) payments beginning in 2024.
A full section-by-section summary of SECURE 2.0 can
be found here:
