3 New Provisions of SECURE 2.0

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law by President Trump on December 20, 2019, bringing significant changes to retirement account rules.  Just as you may have thought you were becoming acclimated to the new rules, wham, congress passes along Secure 2.0 (officially known as Securing a Strong Retirement Act of 2022) to President Biden, who signed yet more new legislation (over 300 pages) into law on December 29, 2022.  Here are 3 takeaways you may be interested in knowing.

Required Minimum Distributions are a hot topic at nearly all our client meetings, whether our clients are subject to the mandatory withdrawals on their own accounts, on inherited retirement accounts, or we are preparing and strategizing for the consequences of the distributions.  RMDs are the amount of money you must withdraw from certain retirement accounts by a specified age, and every year thereafter. For years, the Required Beginning Date for RMD’s was age 70 ½.  In 2020, the RBD age increased to 72, and beginning in 2023, it is extended to age 73.  Starting in 2033, RMDs start at age 75.  The new ages will change our plans for some of our clients.  (1)

If you missed an RMD, the penalty had been 50% of what you should have taken, a stiff punishment for an oversight!  You could ask for forgiveness from the IRS and correct your mistake; I’ve heard from others that the forgiveness was often granted.  SECURE 2.0 reduces the penalty for missing an RMD to 25% of the amount you should have withdrawn and, if action is taken to correct the error in a timely manner, the penalty can be further lowered to 10%.  While this sounds good, speculation is that there will be less forgiveness of the penalty since it is much smaller.  This will likely be good for the government as it’ll mean more revenue for them. (2)

I have clients who diligently saved in 529 college savings plans, and their children did not use the entire balance.   Under the old rules, withdrawals other than for education imposed a 10% federal penalty.  Therefore, the money remains in the 529, hoping for another generation.  Secure 2.0 now offers another option:  a rollover into a ROTH IRA!  This provision goes into effect in 2024 and has limitations, including, the 529 must have been in place for over 15 years, and rollovers cannot exceed the annual contribution limit for Roth IRAs, with a lifetime maximum rollover amount of $35,000.  (3) 

The SECURE Act of 2019 and SECURE Act 2.0 of 2022 bring many new laws affecting retirement savers, retirement plan sponsors and investors.  These are just three of the new provisions brought to you by Secure 2.0.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.  

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINR/SIPC. 
 
LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Wealth Management and can be reached at (715) 343-9600 or louann.schulfer@lpl.com.  www.SchulferAndAssociates.com 

Sources
(1) https://www.congress.gov/bill/117th-congress/house-bill/2954/text#toc-HB9B18B5F05D04C1F8F7B67AC535C6314 – SEC 106

(2) https://www.congress.gov/bill/117th-congress/house-bill/2954/text#toc-H575D3A0CE96D418C8DB2884DC8646B9D  - SEC 302

(3)https://www.finance.senate.gov/imo/media/doc/Secure%202.0_Section%20by%20Section%20Summary%2012-19-22%20FINAL.pdf – SEC 126