Secure Act 2.0 of 2022 Summary: Impact on Individuals

In late December of 2022, Congress passed a giant omnibus budget bill that included Secure Act 2.0, an act which was aimed primarily at changing regulations surrounding how retirees’ money could be saved and withdrawn from retirement accounts. The Act includes many retirement plan changes that impact both individuals and employers over the next several years with the goal of improving and incentivizing retirement savings. Summarized below are the major provisions within Secure Act 2.0 which will impact individuals.

AGE INCREASED FOR REQUIRED MINIMUM DISTRIBUTIONS (RMDs).

The age when distributions are required to be taken from IRAs and most employer-based retirement plans increases from 72 to 73 in 2023 and 75 in 2033.  The chart below summarizes the distribution ages based on year of birth:

Birth Year                            Age RMDs Must Begin

1950 or earlier                   72 (70 ½ prior to 2020)

1951-1959                            73

1960 and later                   75

NEW SIMPLE AND SEP ROTH IRAs

Starting 2023, taxpayers can now fund Simple Roth IRAs and SEP Roth IRAs. This critical change under Secure Act 2.0 will prove to be beneficial to retirees going forward.

REDUCTION OF PENALTY TAX ON FAILURE TO TAKE RMD

Starting in 2023, the penalty for failing to take a RMD is reduced from  50% to 25%.  If the mistake is corrected in a timely manner the penalty is reduced to 10%.  You can still request a waiver of this penalty by completing form 5329. Under Secure Act 2.0, RMDs forgotten will not be as painful on the pocketbook.

NO RMDs FROM ROTH 401k ACCOUNTS

Beginning in 2024, RMDs from Roth 401k accounts are eliminated, making the rules the same as individual Roth IRAs.

TAX FREE ROLLOVERS FROM 529 ACCOUNTS TO ROTH IRAs

Starting in 2024, a direct rollover from a 529 plan to a Roth IRA for the 529 plan beneficiary is allowed. To qualify the 529 plan must have been in place for at least 15 years.  Contributions to the 529 plan in the last 5 years are not eligible to be moved.  The annual limit on the amount transferred is equal to the Roth IRA contribution limit for the year.  The maximum lifetime limit per beneficiary is $35,000.

HIGHER CATCH-UP CONTRIBUTIONS

Beginning in 2024, the IRA catch-up contribution amount will be indexed annually for inflation.  Also, starting in 2025, people ages 60-63 can contribute a catch-up contributions starting at a  minimum of $10,000 for most plans.

QUALIFIED CHARITABLE DISTRIBUTIONS FROM IRA

The earliest age you can begin making QCD remains at 70 ½.  Starting in 2024, the $100,000 maximum annual QCD amount will be indexed for inflation.  Additionally, starting in 2023 a one-time QCD distribution of up to $50,000 can be used to fund a charitable remainder annuity trust, charitable remainder unitrust or charitable gift annuity. There are restrictions on the using a remainder trusts.

EXPANSIONS EXCEPTIONS TO 10% PENALTY ON WITHDRAWLS UNDER AGE \ 59 ½

Staring in 2024, no penalty on a distribution of $1,000 per year to meet emergency expenses.  There are limitations to taking more than one distribution in a 3-year period.  Starting in 2026, a distribution up to $2,500 per year allowed for long term care premium payments. Also added exceptions for distributions to domestic abuse and terminally ill  individuals as well as expansion of withdrawals for natural disasters, public service workers, private sector firefighters and state and local correctional officers. There are multiple limitations and restrictions on each of the above.

To hear more about the above changes and additional changes for individuals please sign up for our webinar or reach out to your client executive at KatzAbosch. Our webinar, found at the button below, will give a more comprehensive Secure Act 2.0 of 2022 Summary on how it impacts your individual situation, giving you the information you need to make informed choices about your retirement. Be sure to watch it to learn more about Secure Act 2.0 and what it will mean for your finances.