Written by Ashley G. White, JD, CPA

The Securing a Strong Retirement Act of 2022, known as SECURE 2.0 Act, made significant changes to retirement savings rules for both the employer and employee.  Some of these changes have already gone into effect, while others will not take effect for several years, so it’s important to stay up to date.  In general, the SECURE 2.0 Act is taxpayer-friendly and broadens access to retirement savings for more people, allowing for saving over an extended period of time.

Required Minimum Distributions

The changes that will affect most people, directly or indirectly, involve the age at which required minimum distributions (RMDs) from qualified retirement plans must begin to be taken in order to avoid a significant excise tax.  The RMD deadline for participants (other than 5% owners) is April 1, following their retirement or the following specified ages, whichever comes later.  Prior to 2020, the specified age for RMDs was 70.5.  The SECURE Act increased that to 72 in 2020, and SECURE 2.0 further extends the specified age to 73 for participants who turn 73 in 2023 and age 75 in 2033.

While generally, this is viewed positively because it gives taxpayers the option of delaying distributions, taxpayers should keep in mind that deferring RMDs may increase taxes and Medicare surcharges later in life since the compacted distributions will be greater in value than if they were spread out over a larger number of years.  Taxpayers should consider all factors, including non-tax factors when deciding to begin taking distributions from their qualified plans.

Employer-Sponsored Roth Options

Additionally, SECURE 2.0 strengthens the Roth option in employer-sponsored plans, which has become more popular with taxpayers in the past few years.  For example, employer-matching contributions are now allowed, and, beginning in 2024, pre-death RMDs for Roth contributions in qualified plans are no longer required, aligning the rules with Roth IRA rules.

Employer Incentives

On the employer side, SECURE 2.0 provides a tax credit beginning in 2023 for 50%-100% of the startup costs of creating retirement plans up to $5,000 per year for three years, depending on the number of employees.  In addition, it provides a tax credit for employer contributions of up to $1,000 per employee for five years.

529 Rollovers

Beginning in 2024, rollovers can be made from 529 plans that have been open for at least fifteen years to Roth IRAs.  While this is subject to a $ 35,000 lifetime limit and the annual IRA contribution limit, it is a great option for unused 529 funds to avoid both income and excise taxes and take advantage of tax-free growth for years to come.

Excise Tax Relief

Historically, a 50% excise tax imposed on the participant would apply to a fully or partially missed RMD.  Effective now, SECURE 2.0 reduces the excise tax from 50% to 25% in all cases and further reduces the excise tax from 25% to 10% if the deficiency in the RMD is corrected by the mailing date of a notice of deficiency from the IRS, the date on which an excise tax is assessed, or the last day of the second tax year beginning after the year in which the excise tax is imposed—whichever is latest.

Employer Match for Student Loan Payments

SECURE 2.0 also allows employers to consider student loan payments as elective retirement contributions for the purpose of making matching contributions.  Younger employees may be unable to afford to save for retirement due to student loan payments, so this addition allows those employees to get started on retirement while paying off their loans.

We have only touched on a few of the changes brought about by the SECURE 2.0 Act in this article. There are many other provisions in SECURE 2.0 Act that may be relevant to taxpayers, including changes to catch-up contribution limits and automatic 401(k) enrollment.  If you’d like to learn more, please reach out to your BMSS advisor at (833) CPA-BMSS to discuss your unique situation and what changes may apply to you.

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