SECURE Act Changes for Retirement Plans You Need to Know Now

Published on September 12, 2023

SECURE 2.0 Has Made Updates to Prior Changes That Affect IRAs and Other Plans in 2023 and Later

Provisions in the SECURE Act 2.0, signed into law late last year, affect retirement plans in several ways, including required minimum distributions (RMDs). We are sharing some of the new rules here, as they may affect your tax planning as well as your retirement savings goals.

Age at which to start taking RMDs

Among the big changes is the higher age at which retirement plan account owners must begin taking required minimum distributions (RMDs) from their accounts.

• Historically, the age at which account owners had to start taking RMDs was 70½. With the first SECURE Act (passed in 2019), that age was increased to 72. Then late last year, the SECURE Act 2.0 upped it to 73.
• However, because that latter law was enacted at the tail end of 2022, investors who are turning 72 this year have a reprieve and can begin taking their RMDs in 2024 if they prefer.
  • If you turned 72 last year (2022) and began taking those distributions, you must continue to do so.

NOTE: If you have a Roth account in your employer’s 401(k) plan, there will be no RMDs for those designated accounts starting in 2024.

Returning erroneous RMDs

Given the confusion about when to start taking required minimum distributions (2022, 2023 or later), there is a way to correct that—but the deadline is fast approaching.

• If you turned 72 in 2023 and erroneously took a required minimum distribution (which could have been delayed until next year), and you wish to return that money to your IRA, the IRS has extended the usual 60-day rollover period for those unneeded RMDs to September 30.
  • When returning that unneeded money to your IRA, you must include any amount of taxes that were withheld to avoid it being treated as a taxable distribution.
  • As always, we strongly recommend you consult your financial or tax advisor before making any changes.

RMD penalty waivers

Thanks to SECURE 2.0, the penalty for a missed RMD is now cut in half, reduced to 25% of the amount not taken. If you correct that error quickly (in whatever way the IRS deems “quickly”) that penalty may be reduced to 10%.

Inherited IRAs

Before the original SECURE Act, beneficiaries were allowed to stretch their inherited IRA distributions over their lifetimes. However, most qualified beneficiaries who inherited IRAs on or after January 1, 2020 fall under the SECURE Act provision that requires they withdraw those funds completely over a 10-year period. (There are some exceptions such as surviving spouses.)

After some changes by the IRS in the RMD rule for inherited IRAs, there will be no penalties for RMDs that were not taken in 2021 or 2022 and the IRS has waived the RMD requirement for beneficiaries of inherited IRAs subject to the 10-year rule. However, the beneficiaries are still required to take full distribution of the inherited IRA account within 10 years.

If you are among those beneficiaries required to withdraw the funds over the 10-year period, you should consult with your trusted advisor to map out your distribution schedule and amounts that work best for your financial circumstances. If the retirement account is a Roth IRA and the original owner did not meet the five-year rule prior to death, be aware that this will affect that distribution timeline.

New Roth IRA opportunities

SECURE Act 2.0 expanded the types of workplace retirement plans that can use Roth features.

• Self-employed individuals or small-business owners may now open a Roth SEP IRA or a Roth SIMPLE IRA.
• Taxpayers with 529 plans for education may now roll the plan’s unused funds into a beneficiary’s Roth IRA starting in 2024. There are limitations to this rule regarding the lifetime rollover cap ($35,000), annual contribution limits for rollovers (currently $6500), and length of time the 529 has been open (at least 15 years) in order to make those rollovers. Additionally, contributions and earnings made in the last five years cannot be rolled over.
• If you have a Roth employer plan (such as a 401(k) with a Roth option), ask your plan administrator about the new requirements regarding catch-up contributions and the option to treat employer contributions as Roth contributions. There are also increased contribution limits for IRAs and 401(k) due to inflation to be aware of.

Increased contribution limits for 2023

With inflation in mind, the IRS has increased the contribution limits for IRAs and qualified workplace retirement plans. This includes solo(k) and other self-directed retirement plans. You’ll find all the figures, income ranges, and deductibility guidelines on the IRS website.

Contact Next Generation to discuss your self-directed IRA

With all the updates, it’s no wonder taxpayers are wondering which of these apply to them and how. If you have a self-directed IRA or solo(k), ESA, or HSA with Next Generation, please contact us to discuss how these changes may affect your retirement plan. We’re available via email at NewAccounts@NextGenerationTrust.com or by phone at 888.857.8058.