The “Consolidated Appropriations Act, 2023,” a $1.7 trillion omnibus spending bill that included the highly anticipated SECURE Act 2.0, was signed into law on December 29, 2022. Also known as the “Securing a Strong Retirement Act,” SECURE Act 2.0 builds upon the 2019 SECURE Act, a summary of which can be found here. SECURE Act 2.0 includes numerous provisions affecting how individuals save for retirement as well as new rules for qualified retirement plan administration, highlighted here.
The major focus of the Act is to help strengthen individuals’ retirement readiness. While the Act contains 92 provisions, the following list addresses many of the most relevant changes for our clients. Some are effective in 2023 and others in 2024 and beyond. Like most new tax-related laws, the IRS will provide additional clarity on a number of the provisions’ interpretation and nuance in the near future.
- New RMD Age: The age at which Required Minimum Distributions (“RMDs”) are required to be taken has been pushed back again. The 2019 SECURE Act moved the RMD age from 70.5 to 72. Now it has been pushed back to 73 or 75, depending on your birth year. Those born from 1951-1959 will have RMDs begin at 73, while those born in 1960 or later will have RMDs begin at age 75. The Qualified Charitable Distribution age remains at 70.5. Additionally, effective in 2023, the penalty for missed RMDs or RMD shortfall decreases from 50% to 25% and down further to 10% if corrected within the “correction window.”
- No More RMDs From Roth Accounts in Qualified Plans: Effective in 2024, RMDs for Roth accounts in qualified employer plans are eliminated. Because Roth IRAs never were subject to RMDs, this change eliminates the most obvious reason to roll a plan Roth to a Roth IRA, but Roth IRAs still have some advantages like the ordering rule on distributions and the 5-year rule related to penalties.
- SIMPLE and SEP IRA Roth Option: Effective in 2023, SIMPLE IRAs and SEP IRAs can be set up as Roth accounts. Previously, these IRAs only had a pre-tax option.
- Catch-up Contributions: Effective in 2025, employer plan catch-up contribution limits for those ages 60-63 are increased to the greater of $10k or 150% of the regular catch-up amount (the greater of $5k or 150% percent of the regular catch-up amount for SIMPLE plan participants). Catch-up contribution limits for those age 50-59 remain unchanged. Effective in 2024, high-income taxpayers (earning more than $145k in wages in the prior calendar year) who make catch-up contributions are obligated to fund the Roth portion of their plan (if available) at age 50 or older.
- 529 to Roth IRA Rollover: Effective in 2024, 529 Plan assets can be rolled into a Roth IRA, subject to several conditions:
- Minimum 15-year 529 account age.
- Contributions and corresponding earnings within the last five years can’t be moved into a Roth IRA.
- Roth IRA needs to be in the name of the 529 beneficiary.
- Annual IRA contribution still applies (a total of $6,500 in 2023).
- Lifetime limit allowed to be transferred is $35k.
- New Option for Surviving Spouse Inheriting a Retirement Account: Effective in 2024, surviving spouses inheriting a retirement account can now elect to be treated as the deceased spouse. RMDs would start at the deceased spouse’s RMD age and RMDs are calculated as if the surviving spouse is the account owner, not the beneficiary. This will likely be implemented by surviving spouses who inherit retirement accounts from a younger, deceased spouse, to delay their RMDs.
- Qualified Charitable Distributions – Split-Interest Entity: Effective in 2023, QCDs have a one-time option to fund a Split-Interest Entity (CRAT, CRUT, Charitable Gift Annuity – CGA) subject to a number of restrictions:
- Maximum distribution is $50k.
- The one-time distribution is only treated as a QCD if that CRUT or CRAT is exclusively funded by QCDs.
- The only income beneficiaries of the CRUT or CRAT can be the IRA owner/spouse.
- All distributions from CRUTS or CRATs when funded with QCDs are subject to ordinary income tax even if assets invested inside normally generate tax-preferential income.
Furthermore, effective in 2024, the QCD limit of $100k will be indexed for inflation.