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SECURE Act 2.0 - New Bill Overview

Tyler and Chuck discuss the recently passed SECURE 2.0 Act by congress and some of its benefits for retirement savers. Some key takeaways include, Required Minimum Distribution (RMD) age increasing to 73 in 2023 and to 75 in 2033, reduced penalties for failing to take a RMD, increased catch-up contributions to retirement accounts, employer Roth matching contributions, 529 plan conversions to Roth accounts, and more. Below are some quick notes on the new bill.

Savers Credit: Low-income earners who put money into an IRA goes from a CREDIT on taxes to a match. This may impact some children and grandchildren who are not dependents but are filing their own individual return and are not full-time students.

New Retirement RMD age 73 (previous age 72)

Indexing IRA Catch-up Limit. Current law has no indexing for catchup contributions, but the new law does index catch up contributions for inflation starting in 2024.

Higher Retirement Plan Catch up limits. Those aged 60 to 63 can increase the catch-up contribution even more to $10K with inflation adjustments starting in 2025. All catch-up contributions are considered after tax contributions.

Matching for Student Loan Payments. The law treats student loan payments as contributions that are eligible for an employer match in the plan. Employers will need to update plans.

Emergency Expense Withdrawals. Most Americans do not have $1,000 for emergencies. The new law allows you to take up to $1,000 per year once every three years from IRAs, 401ks, 403b, or 457 plans. Implementation starts in 2024.

529 to Roth Rollovers. Currently you can't move 529 funds to any retirement account, but this allows money to be moved from 529 to Roth IRAs. The 529 plan has to be in place for 15 years before the rollover. Only aggregate contributions that happened 5 years before the date of the rollover are eligible. The Rollover is limited to the $6,000 contribution limit and $35,000 lifetime. This is a key planning motivation to get 529s started early.

Failed RMD Penalty. Some people fail to take money out of their IRA and beneficiary IRA. If this happens there is a hefty 50% excise tax penalty under current law but the new law reduces this excise tax to 25%. Form 5329 has been used to get exceptions in these situations. The new law also reduces the penalty to 10% if it is fixed within the corrective window (i.e., before you get the IRS letter on your deficiency).

One Time CRT Contribution. The law allows for a one-time $50,000 move from an IRA to a Charitable Remainder Trust.

SEPP Clarification. There are specific rules for a Series of Substantially Equal Periodic Payments (SEPP). The modifications allow rollovers to occur and not be considered a modification provided the payments continue as required as if the rollover didn't occur. It also provides relief for certain annuities and reporting requirements.

Elimination of Additional Tax on Corrective Distributions of Excess Contributions. The new law greatly simplifies corrective matters by eliminating the 10% penalty if corrective action is done within the same year.

QP ROTH Plan Distributions. The new law does not require QP Roth accounts subject to RMDs.

Terminal Illness Exception. The new law creates an exception to the 10% early withdrawal penalty tax for terminal illness. Terminal illness is defined as 84 months or less after certification.

Surviving Spouse Election to be Treated as Employee. This is a more helpful provision for surviving spouses of participants who passed away with a qualified plan (ie. 401k 403b 457). The IRA is already set in this matter.

Federally Declared Disaster. Congress does not have to independently act to get relief by taking money from an IRA if it is done within 180 days of the declared disaster.


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