The SECURE Act 2.0 - Taxes and Retirement Accounts

By:
Fran Toler, MSFS & Brandon Clark, CPA

The SECURE 2.0 Act is a bipartisan comprehensive retirement legislation signed into law on December 29, 2022. These changes below are only some highlights to help you understand parts of this large bill that might relate to you!

Required Minimum Distribution (RMD) age increases from 72 to 73

If you turn 72 in 2023 or later, your Required Minimum Distributions (RMD) will start in the year you turn 73! This age will be phased up to age 75 over the coming decade, details to be determined. 

Penalty for failure to take RMDs reduced from 50% to 25%

25% is the maximum penalty for missed RMDs now, and if corrected quickly the penalty is further reduced to 10%. This is effective for the tax years 2023 and later. 

New exceptions to the penalty for before age 59 1/2 withdrawals

SECURE 2.0 creates some additional exemptions to the penalty for the pre-59 1/2 withdrawals from qualified retirement accounts. These include exemptions relating to terminal illnesses, emergency expenses up to $1,000 per year, federally declared disasters, domestic abuse, public safety officers, and distributions to pay for long-term care insurance. This applies to qualifying distributions beginning in 2024. 

"Rothification"

Beginning January 2023, we have several important additions to existing Roth strategies:

  • Roth, SEP, and Simple options now exist! For some of you with SEPs for your self-employment business, this could mean YOU!
  • Employer contributions (to a 401k) can be Roth in 2024.
  • Some age 50+ “catch up contributions” to retirement plan will be required to be Roth. 

Qualified Charitable Distributions (QCDs)

SECURE 2.0 Act expands the IRA charitable distribution provision to allow for a one-time transfer up to $50,000 to charities through charitable gift annuities, charitable remainder unitrusts, and charitable remainder annuity trusts. 

Although the annual limit for QCDs is currently at $100,000, beginning in 2024 the maximum QCD will be indexed to inflation. Please refer clients to a tax financial professional for any questions on how this may apply to their situation.

Rollover unused 529 funds to a Roth IRA

Beginning in 2024, if money is “trapped” in a 529 plan that is no longer needed, it may be possible to roll those funds into your Roth IRA (Plan must have been open 15 years and the limit is $35,000).

Toler Financial Group does not offer tax or legal advice. Please consult your tax advisor!

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