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:
● 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 (18)
● 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 RBD 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
● 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. Your estate planning goals likely include more than just tax considerations. You may also be concerned with protecting a beneficiary’s inheritance from their creditors, future lawsuits, and a divorcing spouse. In order to protect your hard-earned retirement account and the ones you love, it is critical to act now.
Consider Additional Trusts
For most Americans, a retirement account is the largest asset they will own when they pass away. If we have not done so already, it may be beneficial to create a trust to handle your retirement accounts. While many accounts offer simple beneficiary designation forms that allow you to name an individual or charity to receive funds when you pass away, this form alone does not take into consideration your estate planning goals and the unique circumstances of your beneficiary. A trust is a great tool to address the mandatory 10-year withdrawal rule under the SECURE Act, providing continued protection of a beneficiary’s inheritance.
If you have beneficiaries with a disability or chronic illness, you may want to consider a special needs or supplemental needs trust. Beneficiaries are exempt from the mandatory 10-year payout rule, giving them more time for the retirement account to grow tax-deferred.
Our attorneys can help you with your IRA planning planning. For assistance with these and other business law, tax planning, or estate planning matters, contact our office today!
Legal Disclaimer – The information provided is designed for general information only and is not intended to be legal advice, nor does it create an attorney client relationship. Consult an attorney before making any legal decisions based on your individual circumstances.