SECURE Act. 2.0 was signed into law on December 29, 2022, but some of the changes it makes to the operation of retirement accounts will take effect over the next few years. Major changes include:
The age at which a person must start taking Required Minimum Distributions (RMD) from his or her retirement account will be increased in the year 2023 from 72 to 73. Starting in the year 2033, the age at which RMDs must begin will be 75.
Beginning in the year 2023, the penalty for not taking an RMD will be decreased to 25% of the RMD (down from 50%). Also, this penalty can be reduced to just 10% if the account owner does withdraw the RMD that was not taken and submits a timely corrected tax return.
Currently, if an IRA owner is age 70 ½ or older, he or she can avoid income tax by making a qualified charitable distribution directly to a qualified beneficiary of up to $100,000 from the money withdrawn each year from the IRA (whether withdrawn voluntarily or as part of an RMD). Starting in 2023, this qualified charitable distribution can also include a one-time $50,000 gift to a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity.
Beginning in 2025, employers that start a new 401(k) or 403(b) retirement savings plan must have default automatic enrollment for all eligible employees. The requirement that employers have default automatic enrollment does not apply to small businesses with 10 or fewer employees or businesses that started less than three years ago. Employees may opt out of enrollment.
Currently, persons age 50 or older can make an additional yearly $7,500 catch-up contribution to 401(k) and other employer-sponsored plans. Beginning in the year 2025, persons who are then between the ages of 60 and 63 may make yearly catch-up contributions of the greater of $10,000 or 150% of the standard catch-up contribution.
Beginning in 2024, there will be income-based limits on what type of retirement accounts a catch-up contribution can be added to. Persons with yearly incomes above $145,000 will only be able to make catch-up contributions to Roth accounts; that is, the contributions would have to be funded with after-tax dollars.