Secure 2.0 Act — Retirement Updates
On December 29, 2022, President Biden signed the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0 Act). The previous SECURE Act in 2020 made several changes to retirement planning:
● It increased the required beginning date (RBD) for required minimum distributions (RMDs) from your individual retirement accounts from 70 ½ to 72 years of age.
● It eliminated the age restriction for contributions to qualified retirement accounts.
● It requires that most designated beneficiaries withdraw the entire balance of an inherited retirement account within 10 years of the account owner’s death.
Eligible Designated Beneficiaries Exempt from the 10-Year Rule
The SECURE Act provided a few exceptions to the mandatory 10-year withdrawal rule with a list of eligible designated beneficiaries:
● Spouses
● Beneficiaries who are not more than 10 years younger than the account owner
● The account owner’s children who have not reached the age of majority
● Disabled individuals and chronically ill individuals
New Provisions in the SECURE 2.0 Act
The SECURE 2.0 Act made quite a few enhancements to clarify the original legislation. Several of the key enhancements are summarized below:
● It raises the required beginning date age for RMDs to 73 in 2023 and 75 by 2033.
● It decreases penalties for not taking RMDs to 25 percent of the RMD amount and 10 percent of IRAs if corrected timely.
● Employees will be automatically enrolled in 401(k) and 403(b) plans but may opt out within 90 days.
● Higher catch-up contributions are allowed for participants over 50 ($7,500 in 2023).
● There is more flexibility in annuity payments paid from qualified retirement plans.
● Early distributions are permitted for long-term care contracts without penalty.
● Qualified charities can be named as remainder beneficiaries after the death of a disabled or chronically ill beneficiary without disqualifying the trust as a see-through trust.
● Plan sponsors may match contributions made on student loan repayments on the same vesting schedule as elective deferrals, effective 2024.
● 529 plans maintained for at least 15 years may be rolled over into a Roth IRA with a $35,000 lifetime limit, effective 2024.
Exceptions to the Early Distribution Rule
The SECURE 2.0 Act allows exceptions to the 10 percent early distribution excise tax, including the following:
● Qualified births and adoption expenses
● Terminally ill individuals
● Federally declared disasters
● Emergency personal expenses
● Domestic abuse victims
The new provisions and exceptions in the SECURE 2.0 Act may change the decisions you have made for your intended beneficiaries and alter the path to achieving your long-term goals. Please contact me if you’d like to discuss how to address your own retirement plans within the context of your current estate plan. If you haven’t yet created an estate plan, well, now is the time! Contact me to schedule a complimentary consultation.