As we kick off 2023, we find ourselves with new information to share related to recent legislation passed on December 29, 2022, the SECURE Act 2.0. Its predecessor, The Setting Every Community Up for Retirement Enhancement (SECURE) Act was originally passed in 2019 and brought about several changes to the retirement planning landscape. The SECURE Act 2.0 builds upon the original law and contains several changes that may impact you now or in the future.
To help with some noise cancellation, we’d like to summarize the most-timely aspects of this recent change.
The beginning date for RMDs has changed for anyone born in 1951 or after:
The original beginning date for required minimum distributions (RMDs) from retirement accounts used to be age 70½. The SECURE Act changed this to age 72 as of January 1, 2020. The Secure Act 2.0 has pushed it back yet again:
- Those born in 1951–1959 will need to start their RMDs in the year they turn age 73.
- Those born in 1960 or after will need to start their RMDs in the year they turn age 75.
- Those who were born in 1950 or earlier were already required to start their RMDs and will
continue to complete their annual RMDs based on their life expectancy.
This effectively means that no client will start RMDs for the first time in calendar year 2023, the exception being those with inherited IRAs, which will be discussed below. Clients who turn 72 in 2023 can now defer until age 73 in 2024.
The Qualified Charitable Distributions (QCDs) technique still begins at age 70½:
QCDs are used to make gifts to charities directly from an IRA. The benefit is that gifts to charities are not treated as taxable income to the account holder. However, this technique is only an option once the account holder has reached age 70½. While the RMD age has continued to be pushed back, Congress has left the QCD beginning age at 70½.
The current annual QCD limit per person is $100,000, and the SECURE Act 2.0 included a provision that will begin to index the limit with inflation starting in 2024. It is important to note that you cannot also take a charitable deduction on your tax return for gifts to charities made with QCDs.
The SECURE Act 2.0 did not make further changes to inherited IRAs:
The original SECURE Act made significant changes to how inherited IRAs would need to be administered starting in 2020. The law paved the way for the new 10-year clock in which the beneficiary of a retirement account would only have a 10-year window within which to disburse the entire account. However, not everyone is subject to the 10-year clock and the rules are fairly complex. We encourage anyone who inherited a retirement account since 2020 to speak with us to better understand their specific circumstances.
With this being said, the SECURE Act 2.0 did not make any further changes, nor any further clarifications, to the original provisions.
More to follow in the future:
In addition to the above, the SECURE Act 2.0 also addressed 529 techniques, changes to certain Roth accounts, catch-up contributions in employer plans, and many more provisions. Most of these changes will not be effective until 2024 or later, and we plan to send further correspondence once more is known around these new adjustments.
Notably, the SECURE Act 2.0 did not make any changes to the backdoor Roth strategy, something we have written about in the past. While elimination of this technique has been discussed in recent legislation, use of the backdoor Roth remains available for the foreseeable future.
We look forward to addressing any questions, and we wish you all a wonderful start to the new year.