Secure Act 2.0

On December 29, 2022 President Biden enacted what is commonly referred to as SECURE 2.0, which compliments the 2019 SECURE Act.  The legislation makes some sweeping changes to retirement plans, which could impact your retirement and estate planning: 

Here are some key takeaways from SECURE 2.0:  

  • Required Minimum Distribution (RMD) Age Increase:  The age for required minimum distributions has been increased to 73 beginning January 1, 2023 and will increase again in 2033 to age 75.  However, individuals who reached the age 72 in 2022 must take their first RMD by April 1, 2023 and the second RMD by December 31, 2023.  For individuals who turn 72 in 2023 (and thus will turn 73 in 2024), the first RMD must be taken by April 1, 2025.
  • Decreased Penalty for failing to take RMD: The penalty for failing to take an RMD was decreased to 25% of the RMD amount, which may be reduced to 10% if the account owner makes a timely correction.  The penalty was previously a hefty 50% of your RMD amount.
  • Eliminating RMDs from a Roth 401(k):  Beginning in 2024, individuals who have invested into a Roth 401(k) account will no longer be required to take an RMD.  This change will align Roth 401(k) accounts with Roth IRA accounts, which already were exempt from RMD requirements.
  • Catch-Up Contributions: People approaching the age of retirement may contribute more to their retirement accounts in order to “catch-up.”  Those 50 years old and older are currently allowed to make catch-up contributions, up to $7,500 over the standard annual pay-in limits for retirement accounts.  However, beginning in 2025, individuals aged 60 to 63 may increase their maximum catch-up contribution to $10,000 or 150% of the regular “catch-up” amount, whichever is greater.
  • No change to the 10-year rule: It is important to note that SECURE 2.0 did not modify the 10-year rule, which was imposed on beneficiaries of inherited retirement accounts after passage of the 2019 SECURE Act.  The 10-year rules states that an inherited retirement account must be emptied within 10-years, with exceptions for certain beneficiaries, including spouses and minor children.  It was originally interpreted to mean that beneficiaries subject to the 10-year rule could take no distributions in years 1 to 9 and then empty the account in year 10.  However, the IRS issued proposed regulations that take the position that if the prior retirement account owner had passed the age triggering RMDs, then the inheriting beneficiary must take “annual” RMDs based on the 10-year payout rule. 

  • Relief for RMDs subject to the 10-Year Rule:  Since the RMD timing requirements added by the proposed regulation (mentioned above) were not in the SECURE Act and only first announced in 2022, beneficiaries were unsure if they had to take annual RMDs or could wait until the end of the 10-year period, without being penalized.  In response to these comments, the IRS announced that it will not assert a penalty for failure to take RMDs in 2021 and 2022. See IRS Notice 2022-53 (October 7, 2022).  Thereafter, the IRS further extended the moratorium on RMDs by announcing that “final regulations regarding RMDs under § 401(a)(9) and related provisions will apply for calendar years beginning no earlier than 2024.”  See IRS Notice 2023-54 (July 14, 2023).  As a result, the regulations remain in proposed form and are not yet binding law.  Therefore, the IRS has issued relief to beneficiaries of inherited retirement accounts and have indicated the beneficiaries will not be penalized for failing to take distributions for 2020 through 2023.  If the regulations continue to remain in proposed form in 2024, relief may also be issued for subsequent income tax years.  

If you would like to discuss your estate plan, including your retirement accounts, please feel free to contact us at 480-951-8044, or click here to send us a message.

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