January 20, 2023

SECURE 2.0 Act Makes Many Changes

On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act of 2023 [Public Law 117-328], which included a section titled SECURE 2.0 Act of 2022. There are some 90 retirement provisions included under SECURE 2.0 Act; however, not all of them relate to IRAs and some of them go into effect after 2023. Here are a few of the more notable changes that affect IRAs:

  • Increases starting RMD age to 73 in 2023. Then age 75 in 2033.
  • Reduces the 50% excess accumulation penalty for a missed RMD to 25% starting with 2023 RMDs.
  • Expansion of the Employee Plans Compliance Resolution System (EPCRS) to include a waiver of the excess accumulation penalty and permitting a nonspouse beneficiary to roll over an IRA death distribution in the case of an IRA sponsor’s inadvertent error which led the beneficiary to believe the distribution could be rolled over, to be effective in 2025.
  • Indexes the $1,000 IRA catch-up contribution limit for IRA owners 50 or older to cost-of-living adjustments starting in 2024.
  • Limits the repayment of qualified birth or adoption distributions to within three years of receipt of the distribution.
  • Permanent rules allowing for penalty-free qualified disaster recovery distributions (limited to $22,000 per disaster), effective for disasters occurring on or after January 26, 2021.
  • Allows penalty-free withdrawals from IRAs for victims of domestic abuse, effective in 2024.
  • Beginning in 2023, the net income attributable to an excess contribution is no longer subject to the IRS 10% early distribution penalty, regardless of the individual’s age.
  • Effective in 2023, creates a new exception to the IRS 10% early distribution penalty for individuals who are terminally ill. These distributions can be repaid within three years.
  • Allows Roth contributions to both SEP and SIMPLE IRAs. However, it appears that additional IRS guidance is needed, and plan documents need to be updated before Roth contributions can be accepted to SEP and SIMPLE IRAs.
  • Allows up to $35,000 (lifetime limit) to be moved from a 529 plan to a Roth IRA. However, the amount that may be moved from a 529 plan to a Roth IRA each year is subject to the annual IRA contribution limits.

In addition to changes made under SECURE 2.0 Act, another section of the Consolidated Appropriations Act of 2023 temporarily extends the exemption for high deductible health plans (HDHPs) to allow tele­health services to be covered by an HDHP before the deductible is met but only for the 2023 and 2024 calendar years.