In 2019, the SECURE Act was signed into law by President Trump. SECURE is an acronym for Setting Every Community Up for Retirement Enhancement Act of 2019.
On March 29th, 2022, the House of Representatives passed Secure Act 2.0. Its full name is Securing a Strong Retirement Act. The Senate version remains in Committee. Regardless, the legislation has broad bipartisan support and will likely become law in 2022.
The combined legislation contains hundreds of provisions. This note is intended to highlight changes that might apply to you. Here’s a synopsis:
👉 Pre-SECURE Act rules are grandfathered for decedents who passed away before January 1, 2020.
👉The beginning age for required minimum distributions (RMDs) was moved from 70½ to 72 in 2021.
👉Most non-spousal beneficiaries (like your children, for example) who inherit an IRA must empty the account within 10 years. This has quickly become known as “the 10-year rule.” It eliminates the “stretch IRA” that allowed beneficiaries to potentially extend benefits for decades.
👉The 10-year rule refers to the 10th year after death. The year of death is Year 0.
👉The rules for surviving spouses of retirement plans and IRAs remain unchanged. The 10-year rule does not apply to spouses.
👉Inherited IRAs that were “paying out” prior to the SECURE Act are allowed to continue as they were. The 10-year rule does not apply.
👉The age of majority to determine beneficiary designations is 21, even though the age of majority in most states is 18. In the Secure Act, beneficiaries under age 21 are minors.
👉Starting in 2023, all catch-up contributions to employer-sponsored plans must be made to Roth accounts. That means they won’t count as pre-tax contributions, but they'll be tax-free upon withdrawal.
👉Beginning in 2024, the “catch-up provision” for participants aged 62-64 in 401(k) and 403(b) plans will increase to $10,000 annually and be indexed to inflation thereafter. The current provision is $6,500 for all ages.
👉The beginning RMD age will become 73 in 2023, 74 in 2030, and 75 in 2033.
As with most legislation, many details still need clarification. The clarifications are mainly administrative and will come from the IRS. Account custodians such as Vanguard, Fidelity, Schwab, and so on will keep clients informed of any changes.
Here’s the one thing you should do right now:
Review your retirement plans and IRAs to assure that the beneficiary designations are up to date. That includes any Roth, SEP-IRAs, or annuities you might have. Complications often arise where there's been a divorce, death, or other life event, and beneficiaries were never updated.
Feel free to contact us if you have any questions about your situation.
James Cosgrove, CFP, Plano, TX jim.cosgrove@verizon.net 972-489-0262
Jim Cosgrove, Partner, San Jose, CA jimcos42@gmail.com 408-674-6315 Twitter@JimCos542
Disclaimer: This post is essentially a matter of tax law and tax planning. It is provided for your information only, and does not constitute tax advice. You are advised to consult with qualified tax professionals, or, if you self-prepare, do your own due diligence.
