Key Provisions of the new SECURE 2.0 Act

A new bill was recently passed into law at the end of 2022. The Securing a Strong Retirement Act of 2022 – often referred to as “SECURE 2.0” has new provisions that affect planning with retirement accounts.

While there are almost 100 sections of the complex SECURE 2.0 Act, some significant changes include:

• Increased beginning age for required minimum distributions (RMDs) to age 73 in 2023 and age 75 in 2033.
• Higher retirement plan contribution limits for certain individuals.
• Additional Roth retirement plan options.
• Ability to roll over and repurpose unused 529 assets to a Roth IRA for the 529 beneficiary.
• New or expanded penalty exceptions for early withdrawals.
• One-time election for qualified charitable distribution to split-interest entity; increase in qualified charitable distribution limitation (Indexed for inflation).

If age 70.5 or older, a taxpayer can make a contribution directly to a charity (not a donor advised fund), up to $100,000 per year. Before Secure 2.0, that meant a distribution outright from the IRA to a charity. Now you can make a one-time split interest gift to a charitable gift annuity or charitable remainder trust, with limitations:

1. Maximum contribution amount of $50,000.

2. The payout must be to yourself or yourself and your spouse.

3. The one-time gift must start within a year (no deferred gift).

4. The annual payout must be fixed payments of at least 5% of the gift amount.

It is imperative for clients to consult with their financial and estate planning team when dealing with IRAs and other retirement plans which are unique assets that require special attention.  The previously enacted Secure (Setting Every Community Up for Retirement Enhancement) Act of 2019 eliminated lifetime stretch-out tax savings for most beneficiaries.  Only four types of eligible designated beneficiaries can use stretch planning with a rollover IRA: surviving spouses, minor children (but only until they reach the age of majority), disabled and chronically ill beneficiaries, and any individual less than 10 years younger than the plan participant.  The decisions to either withdraw from an inherited IRA or defer withdrawal have various tax consequences depending on a variety of factors such as the beneficiary’s income tax bracket, age, and withdrawal amount.  Deferral in an IRA may not be as beneficial as the beneficiary withdrawing the IRA funds within the 10 years so that they can contribute that money to a Roth IRA or Roth 401(k), if beneficiary eligible and depending on several factors.

It is essential to properly coordinate your beneficiary designations in general with your estate plan, but more critical to ensure that your IRA beneficiaries are done in the proper manner without adverse or unintended tax consequences. 

If you have questions about your IRA planning or find yourself in a situation as a named beneficiary of an inherited IRA, please reach out to our team at Loveland & Hurley, PLLC.  There are various options that may be available to alleviate these problems, but most are on a time deadline after death.