May 14, 2022
On 12/20/2019, the President signed the SECURE Act, which stood for “Setting Every Community Up for Retirement Enhancement Act”. SECURE made changes to many tax retirement plan rules. Perhaps the biggest change was moving the age by which required minimum distributions (“RMD”) from retirement plans must begin from age 70-1/2 to age 72. It also removed the lifetime distribution option for certain beneficiaries, moving those to 10 years maximum. This effectively removed the multi-generational “Stretch IRA” planning tool.
H.R. 2954, popularly known as The SECURE 2.0, passed the House by almost a unanimous vote on March 29, 2022 and is now being reviewed by the Senate’s Committee on Finance. Such an overwhelming passage of a bill may indicate that enactment is likely.
Provisions include –
- Increasing the current age 72 RMD as follows. This is a helpful change but it’s a step back from simplification.
- RMD stays at age 72 for individuals who attach age 72 in 2022 or earlier.
- RMD becomes age 73 on or after 1/1/2023 for individuals who attain age 72 after 12/31/2022 and attain age 73 before 1/1/2030.
- RMD becomes age 74 on or after 1/1/2030 for individuals who attain age 73 after 12/31/2029 and attain age 74 before 1/1/2033.
- RMD becomes age 75 on or after 1/1/2033 for individuals who attain age 74 after 12/31/2032.
- Increase in catch-up contributions.
- The $1,000 IRA catch-up additional contribution for those age 50 and over will be indexed for inflation effective after 12/31/2023.
- The non-IRA catch-up additional contribution for those age 50 and over is increased for those who have attached ages 62, 63, and 64, but not age 65. For 401(k) plans, the catch-up increases from $6,500 to $10,000. For SIMPLE plans, the catch-up increases from $3,000 to $5,000. This is great for these participants but it’s a setback for simplification as different amounts apply at different ages. Effective after 12/31/2023.
- Allowing SIMPLE plans to accept Roth contributions.
- Allowing employer deferral matches in 401(k), 403(b), and 457(b) plans to be on a Roth basis. Currently this is not an option. Would the employer get a deduction for a Roth match? We are not sure yet. Effective as of date of enactment.
- Expanding automatic enrollment in employer retirement plans to as soon as a participant is eligible. The beginning deferral contribution is 3% to 10%, and it increases by 1% each year until it reaches 10%. Exceptions exist for small businesses with 10 or fewer employees, new businesses, church plans, and governmental plans. Effective for tax years after 12/31/2023.
- Allowing employee student loan payments to be treated as deferrals for purposes of employer matching contributions. It is not clear how, administratively, the employer will know about employee student loan payments that are eligible for a retirement match. Effective for tax years after 12/31/2022.
- Enhancing the tax credit for starting a new small employer retirement plan from 50% to 100% of the costs of establishing a plan for up to 100 employees (previously 50). The maximum credit is $1,000 per employee. Effective for tax years after 12/31/2021.
- Enhancing the tax credit for retirement savings for lower-income taxpayers, increasing the adjusted gross income phase-out range, and removing the credit percentage phase-out. Effective after 12/31/2026.
- Creating a national online “lost and found” for missing participants in employer retirement plans. Effective after enactment.
Let us know if you have any questions about these or any other matters.
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