Just before the COVID Pandemic, Congress passed the original SECURE Act (Setting Every Community Up for Retirement Act of 2019) which pushed the Required Minimum Distribution (RMD) age for IRAs from 70 ½ to age 72. The recent passage of SECURE 2.0 once again extends this age, along with several other provisions intended to (as the name states) set Americans up for a successful retirement. Below is a summary of a few of the provisions we expect to impact many of our clients.
- As of January 1, 2023, the RMD age for retirement plans is now age 73, rather than 72. If you turned 72 last year, you must continue taking RMDs. But, if you turned 72 on January 1, 2023 or later, you can delay your distributions until the year you turn 73.
- The RMD age will again increase in 2033 (applies to those born in 1960 or after)—this time to age 75.
- Prior to the passage of SECURE 2.0, the penalty for missing or underestimating an RMD has been very steep—50%. The penalty is now 25% of the RMD amount, and only 10% if you correct the error within a timely manner. The verdict is out on what “timely” means, but we expect it should be attainable for most folks who are trying to stay above board.
- Employees with Roth employer retirement accounts will no longer be subject to RMDs. This change aligns with the current rules for Roth IRAs (no RMDs required).
- A spouse inheriting an IRA can choose to use their late spouse’s age for their RMD calculation, if it’s to their financial benefit.
- Currently, if an employee receives a matching contribution from an employer into a Roth employer plan (401(k), etc.) it is received on a pre-tax basis. Employees will now be able to elect that those employer contributions come as after-tax Roth contributions. The employee will pay the associated tax.
- If you are over the age of 50, a high-income employee (making more than $145,000 per year) and contributing a catch-up amount to your employer plan, the catch-up contribution must now be treated as a Roth-after tax contribution.
- Beginning in 2024, the law will allow for a transfer of up to $35,000 (lifetime maximum) to a Roth IRA from a 529 for the corresponding beneficiary. To qualify for the transfer, the account must have been open for at least 15 years.
There are a number of other changes, but we believe the above will likely be the most impactful to our clients. If you have questions about how these changes, or the other provisions within the SECURE Act 2.0 may affect your personal situation, please reach out to our team to discuss.
PYA Waltman Capital, LLC (“PYAW”) is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about PYAW’s investment advisory services can be found in its Form ADV Part 2, which is available upon request. PYA-23-06