At the end of 2022, President Biden signed the Setting Every Community Up for Retirement Enhancement Act, 2022, commonly referred to as the SECURE Act 2.0. The Act makes a number of changes to the rules applicable to qualified retirement plants, IRAs, and ROTH IRAs. A few of those changes are as follows:
- Effective January 1, 2023, the age at which required minimum distributions (RMDs) from qualified retirement accounts and IRAs must commence has been increased by one year to April 1st of the year following the year during which the account owner attains age 73 (if attained after 2022 and before 2023). Prior to this change the age was 72. This change does not affect individuals who are already taking RMDs.
- Effective January 1, 2023, the age for commencing RMDs is raised to age 75 (if reached after 2032).
- The penalty for failing to take an RMD is reduced from 50% to 25%. The penalty is further reduced to 10% if the participant corrects the failure in a timely manner.
- Under prior law, RMDs were not required during the life of the owner of a Roth IRA, but they were required during the life of the owner of a Roth 401(k) account. Beginning in 2024, the same RMD rules apply to owners of Roth IRAs will apply to owners of Roth 401(k) accounts.
- Congress expanded the categories of early distributions from IRAs that do not trigger a 10% penalty.
- Until now only an employee’s contribution to a 401(k) plan or a 403(b) account could be matched by the employer. Under the Act, the employee’s student loan payments can also be matched by the employer’s making a contribution to the employee’s 401(k) or 403(b) account.
- Under a now long-standing rule, an IRA owner who is age 70 ½ or older can have up to $100,000 of RMD paid directly from the IRA to charity. This is called a “qualified charitable distribution.” Under the Act, beginning in 2024, the $100,000 amount is inflation-adjusted. A qualified charitable distribution is not included in the IRA owner’s income.
- Congress also expanded the definition of a qualified charitable distribution effective January 1, 2023 to include a one-time distribution of up to $50,000, in lieu of, or as a part of, that year’s RMD, to fund a charitable remainder trust or a charitable gift annuity. The $50,000 amount is inflation adjusted.
- Beginning in 2024, up to $35,000 of funds which remain in a Section 529 education account can be paid to a Roth IRA for the beneficiary of the 529 account without the application of the 10% penalty which applies when the funds in a 529 account are applied for other than an educational purpose. For this rule to apply, the 529 must have been in existence for at least 15 years.
There are many requirements and conditions that apply to the changes described above. Please consult with us, or with your personal income tax advisor, if you would like to know more about any of the changes discussed above or any other aspect of the SECURE ACT 2.0.