by Dan Acheson, CFP, EA
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) was signed into law in December 2019 and brought with it greater attention to retirement savings via many provisions for employer-sponsored retirement plans and other retirement savings vehicles/allowances. Fast forward three years, almost to the day, and a new version of the act, aptly named the SECURE 2.0 Act of 2022, was signed into law as part of the Consolidated Appropriations Act (CAA) of 2023.
The SECURE Act 2.0 uses its predecessor as a foundation and expands/improves upon the retirement savings elements. The 2.0 Act itself has over 90 new provisions to promote savings for individuals, incentives for businesses to offer retirement savings opportunities, and more flexibility when it comes to accessing funds from retirement accounts. Below will highlight some of the features of the SECURE 2.0 Act that will have the greatest impact on our clients at Munn Wealth Management.
Increasing the Required Minimum Distribution (RMD) Age, Decreasing the Penalties on Neglecting to Take RMDs
Starting January 1st, 2023, the age to begin taking RMDs from tax-deferred retirement accounts has gone up to 73. This primarily affects individuals who are turning 72 this year as they will no longer be required to take a minimum distribution for 2023. This is an update to the SECURE Act of 2019 that raised the age from 70½ to 72. SECURE Act 2.0 includes an additional provision that raises the age limit for the first RMD to 75 starting in 2033.
Version 2.0 of the legislation implements a reduction of the penalty taxpayers are forced to pay, should they neglect to take a RMD, from 50% to 25%. The penalty is further reduced to 10% if the failure is corrected in a “timely manner.” Timely manner, while explicitly defined in the annals of the act itself, leaves plenty of room for interpretation. The bottom line is if the failure is found and corrected as soon as possible, the penalty for negligence will be reduced to 10%.
The measures of delaying the age of RMDs and reducing the penalties are an attempt to keep taxpayers’ retirement savings in a tax-deferred vehicle longer in order to further assist with covering their expenses. This delay in the RMD age brings a plethora of planning opportunities with it, which your advisor would love to speak with you about.
Qualified Charitable Distributions One-Time Gift Provision
Effective immediately, those who are 70½ and older may elect, as part of their Annual Qualified Charitable Distribution (QCD) limit, a one-time gift up to $50,000 to a Charitable Remainder Trust (CRT) or charitable gift annuity from an IRA. This provision expands the definition of a qualified charity to entities without a 501(c)3 designation; however, contributions to donor advised funds and private foundations still do not count for QCD treatment and benefits. The $50,000 limit will be indexed for inflation each year moving forward.
Other Important Anecdotes from the Secure Act 2.0 slated to begin in future years
Beginning in 2024
Roth Accounts in employer retirement plans will be exempt from RMDs.
The $1,000 catch-up contribution limit in IRAs for people age 50 and older will be indexed for inflation.
Employers will be able to “match” employee student loan payments with contributions to their retirement account, giving workers more incentive to save for retirement while paying off educational debt.
After 15 years, 529 plan assets can be rolled into a Roth IRA. This will be subject to annual contribution limits and a lifetime limit of $35,000
A $1,000 withdrawal from retirement savings for emergency expenses will be allowed without the 10% early withdrawal penalty, once per year
Beginning in 2025
Individuals ages 60 through 63 will be able to make catch-up contributions up to $10,000 to an employer retirement plan. The $10,000 will be indexed for inflation. One item to keep in mind is for those earning over $145,000 in the prior calendar year – all catch-up contributions for those 50 and older will need to be made to a Roth account.
Most new 401(k) and 403(b) plans adopted after 12/29/2022 must automatically enroll participants in the employer retirement plan.
These few items are just a small assortment of what the SECURE 2.0 Act has to offer, but those that I feel could have the greatest impact on our clients as they continue their journeys to living lives of significance.
Munn Wealth Management is registered as an investment adviser with the United States Securities and Exchange Commission. This material is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. All readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. 1323 GPW