On Dec. 29, 2022, the Consolidated Appropriations Act was enacted, including the Secure 2.0 Act, featuring several significant provisions to retirement and tax law. The Secure 2.0 Act aims to expand coverage and increase retirement savings, among other changes, and builds upon the Secure Act passed in 2019.
Key Highlights of Secure 2.0
Key highlights of the Secure 2.0 Act include the following:
- Increase in Beginning Age for Required Minimum Distributions (RMDs) – The act increases the required age for beneficiaries to begin taking RMDs from qualified retirement plans and annuity contracts. For individuals who turn 72 after Dec. 31, 2022, the applicable RMD start age is 73. For individuals who turn 74 after Dec. 31, 2032, the applicable RMD start age is 75.
- Higher Elective Catch-Up Contribution Deferrals– For defined contribution retirement plans, participants who are age 50 or older may make additional pretax elective deferrals (also known as catch-up contributions) with the catch-up contribution limit set to $1,000 (indexed for inflation for years after 2023). This is an increase on the existing catch-up contributions allowed by individuals age 50 and older.
- Higher Catch-Up Contribution Limit for Ages 60, 61, 62 and 63 – In 2024, the catch-up contribution limit will be indexed for inflation and in 2025, the current catch-up limit will be increased to the greater of $10,000 or 50 percent more than the regular catch-up amount for individuals who are ages 60, 61, 62 and 63.
- Catch-Up Contributions for High-Income Earners – Beginning in 2024, all catch-up contributions made by individuals with compensation exceeding $145,000, must be Roth IRA contributions.
- Tax-Free Rollovers from Section 529 Accounts to Roth IRAs Permitted – Beneficiaries of Section 529 college savings accounts that have existed for more than 15 years may rollover up to $35,000 to a Roth IRA without incurring a tax or penalty. The $35,000 is a lifetime maximum, and the rollover amount is limited to the IRA contribution limit for the year of rollover. The effective date for this new law is Jan. 1, 2024. This provides the opportunity to convert excess 529 plan accounts to a Roth over time.
- Limited Conservation Easement Deductions for Pass-Through Entities – The act does not allow charitable deductions for any conservation easement contribution made by pass-through entities if the amount exceeds two and a half times the sum of each partner/member’s relevant basis in the contributing entity. However, if the contribution meets a three-year holding period test, if substantially all of the contributing entity is owned by members of a family, or if the contribution relates to the preservation of a certified historic structure, the limitation restriction does not apply.
- Reduction in RMD Excise Tax – Currently, a failure to take the RMD in any given year results in a 50 percent penalty on the RMD shortfall. That penalty has been reduced to 25 percent and if the failure to take the RMD is corrected in a timely manner, the penalty is reduced further to 10 percent.
For more information about how the Secure 2.0 Act impacts your retirement and tax situations, reach out to your Windham Brannon advisor or contact Doug Neal.
