Secure Act 2.0

January 9, 2023

Happy New Year, Happy New Legislation!


On December 23, 2022, Congress passed the Consolidated Appropriations Act of 2023, which included the SECURE Act 2.0, which was part of the 2023 Omnibus Spending Bill.  It made for good reading over the past week.  For those inquiring minds that want to know what “SECURE” stands for, it is “Setting Every Community Up for Retirement Enhancement.”

This is going to focus only on the SECURE Act provisions, but there is soooooo much more!  Here is a link to the actual bill if you have trouble sleeping some night: BILLS-117hr2617enr.pdf (congress.gov)


RMD’s

  • If you were born before 1951 = No Impact

  • If you were born between 1951 - 1959 = RMD age is now 73 - for those turning 73 between 2023 - 2032 (I know if you were born in 1951, you would be 72 this year, so you wouldn’t turn 73 in 2023.  I’m just giving you the language in the bill here)

  • If you were born after 1960 = RMD age will be 75 starting in 2033 (yes, again the math seems odd here because 1960 + 75 = 2035;  it is believed this may be an error in the legislation)

  • Exciting News…If you are supposed to start RMD’s this year, you get a pass - you can wait until next year!

Correction of RMD’s Missed

  • If for some reason you miss an RMD in the future, they are changing the penalties.   We’ll detail this in future quicktips.

Qualified Charitable Distributions (QCD)

  • You can still take Qualified Charitable Distributions at age 70.5!  No change to connect this “feature” to the actual RMD age.  We see this as a planning opportunity!  

  • Also, effective in 2024, the maximum amount will be indexed for inflation.  There are other changes to QCD’s that are too complex to explain in this summary, but more will be coming.

  • Beyond the changes to RMD’s, I’ve picked the items I think will affect the majority of our clients, readers, and their families.

Effective 2023

  • Effective 2023 - One that we are extremely excited about…Roth SEP and SIMPLE IRAs!  I did a happy dance when I read this provision.  Now we need to get the custodian’s on board for this, but I feel this is real progress.

  • More cool Roth related news - employer contributions can be made to the “Roth” side of the plan!  This applies only to matching and nonelective contributions (NOT Profit-Sharing).  Important Note: these contributions need to be 100% vested when contributed, no vesting schedule or forfeit provisions can be applicable.

  • You will be able to move 529 funds to a Roth IRA - it appears it will need to go to the beneficiary…but wait, it’s not as good as it sounds.

    • The 529 needs to be open at least 15-years 

    • Beneficiaries will have to have some sort of compensation, but we don’t know how much, so more to come and there is a limit equal to the IRA contribution limit in the year it is transferred, and there is a lifetime cap of $35,000

    • Any contributions to the 529 in the past 5-years can’t be moved

  • Hardship Distributions have some big changes (we will provide more details in the future)

  • There is a new terminal illness distribution rule that allows for penalty free distributions (we will provide more details in the future)

  • 72(t) Rules has some interesting changes that we will share in the future

  • Qualified Longevity Annuity Contract (QLAC) increase to $200,000 (from $135,000); in the past this hasn’t been an overly helpful tool, but with the limit increasing, it is something that we will be taking a closer look at.

  • One of my favorite little nuggets is the Military Spouse Eligibility Credit!  If an employer has more than 100 employees, they can adopt provisions for military spouses to get access to the plan entry sooner.

Effective 2024 

  • If your company sponsored retirement plan has a Roth provision, you will not be required to take a minimum distribution from the plan (in the past this was true only for IRAs)

  • If you have been required to take them, you will be able to stop in 2024 (this is only for “designated” Roth accounts in your company sponsored retirement plan)

  • Just a reminder, designated Roth Accounts (retirement plans) have prorated distributions (earnings and contributions), whereas Roth IRAs allow for contributions first distributions.

  • This is a big one!  For anyone who makes more than $145,000 in 2023, any catch up contributions will automatically be contributed to a designated Roth Account - meaning, they aren’t allowed to be pre-tax

    • If your employer doesn’t have a Roth provision, then you can’t make catch up contributions.  Calling all my Corning Inc. clients…start working on your employer now to add this provision.

  • IRA Catch-up contributions will be indexed for inflation

  • Victims of domestic abuse will be able to take penalty free distributions of 50% of the balance up to a maximum of $10,000

  • There is a $1,000 hardship distribution per year that is an exception to the 10% penalty (there are some other restrictions on this, so it’s not as flexible as it sounds).

  • There is a creation of “Emergency Savings Accounts” as part of your employer-plan account.  The maximum balance is $2,500.  We feel that for some folks, this will give them the comfort to save, we are not clear on how this is going to work yet.

  • It appears the 72(t) Rules were amended to allow you to have an IRA that you establish a 72(t) distribution on and one that you do not.  The one that you do not have the 72(t) distribution set up on would not be held to the 5-years or age 59.5 rule.  We are awaiting further IRS interpretations on this one.

  • Calling all Employers that offer a SIMPLE IRA with less than 25 employees…

    • You will be able to make additional contributions of up to 10% of employees compensation (max at $5,000)

    • Contributions limits will increase too!  

    • We are very excited about this because it allows for more small employers to offer retirement plans, contribute more and not have the complexity of a full 401k plan.

    • More to come on this provision

  • If you have a student loan, your employer may elect to contribute a “matching” contribution equal to your student loan payment.  

Effective 2025

  • If you are between the ages of 60 - 63, you will be able to make an even bigger catch-up contribution than the “normal” catch-up contributions.  Remember though, catch up contributions must go in the designated Roth accounts.

  • A qualified long-term care distribution exception is effective December 29, 2025.  You will be able to take the lesser of the $2,500 or 10% of our vested balance toward your long-term care insurance. This is for you and your spouse.  This will be interesting to see how we are going to be able to get these distributions processed in the final three days of a tax year!  

Effective 2026

  • ABLE account eligibility expanded to include persons disabled prior to age 46 (currently requires you to be disabled prior to age 26)

Phew!  We hope you found this helpful, and we will be rolling out some of the other items as we learn more about them.


Happy New Year!