Gabe Fransen | January 10, 2023

Just as our team and the folks that we provide advice to started to become accustomed to Required Minimum Distributions starting at age 72, which became law in 2020, the SECURE Act 2.0 became law and we need to adjust again. This article will talk about a few of the provisions in the Act that will have the most impact on the most people and point out some other important financial changes for 2023.

The SECURE Act 2.0 is also known as “Securing a Strong Retirement Act of 2022”. In total, there are over 100 provisions in this Act and we’ll be learning more and more about this Act over the next several years as the provisions begin to take effect.

RMD Age Increases

Effective this year, 2023, the starting age for Required Minimum Distributions is pushed back to age 73 for those that turn 73 between 2023 and 2032. The starting age for RMDs is pushed back to age 75 for those turning 73 in 2033 and beyond. This means that for folks that have birth years from 1951 through 1959, the RMD start age is 73. For those that have birth years of 1960 and greater the RMD start age is 75. Interestingly enough, due to this change, nobody will start RMDs this year.

These changes regarding RMD age, however, have no impact on the age at which Qualified Charitable Distributions can take place, that is still 70.5.

Qualified Charitable Distribution Changes

Effective this year, 2023, a taxpayer may take a one time distribution from an IRA which is made directly by the trustee to a split-interest entity (Charitable Remainder Trust, Charitable Remainder Annuity Trust, or Charitable Gift Annuity) up to $50,000. There are some additional rules around this that may limit that benefits in addition to the $50,000 max.

• The split-interest entity must only be funded by Qualified Charitable Distributions
• Income Beneficiaries can only be the owner and the spouse
• CRUT/CRAT distributions will be taxes as ordinary income
• CGA distributions must begin within one year of funding and be greater than or equal to 5%

Missed RMD Penalty Reduced

Effective this year, 2023, tax payers that don’t meet their required minimum distribution requirements will receive a 25% penalty as opposed to the 50% penalty that was previous law. In addition to lowering the penalty from 50% to 25% the Act also allows further reduction, down to 10% if the error is fixed during the “correction window”. The correction window begins on the date the tax is imposed and ends at the earliest of:

• When the notice of deficiency is mailed to the taxpayer
• When the tax is assessed by the IRS
• The last day of the second tax year after the tax is imposed

529 to Roth IRA Transfer

Effective in 2024, unused funds in 529 plans will be allowed to rollover to a Roth IRA. Of course there are stipulations related to this… here are the big ones:

• The Roth IRA must be in the name of the 529 beneficiary
• It is limited to the IRA contribution limit
• Lifetime max is $35,000
• The 529 plan must be in place for 15 years
• The last 5 years of contributions or the gain on the contributions are not eligible for rollover

Options for Surviving Spouse

Effective in 2024, if the deceased spouse leaves an IRA account to the surviving spouse, the surviving spouse will have the ability to elect to be treated as the deceased for RMD purposes. This would allow the surviving spouse to delay RMDs if they are the older of the two.

Catch-up Contributions

Catch-up contributions allow people age 50 and older to contribute beyond the standard maximum contribution limit for retirement accounts. Two changes in SECURE 2.0 for contribution limits are:

• Effective in 2023, the catch-up contribution max for IRAs and Roth IRAs goes from $7000 to $7500 per year
• Effective in 2025, for those age 60-63, you’ll be able to add $10,000 more per year above the standard limit
  • Required to be after-tax basis for those earning over $145,000

Contribution Limits Increase

Contribution	2022 Limit	2023 Limit	Change
401k/403b Employee Contribution	$20,500	$22,500	$2,000
401k/403b Catch-Up Contribution	$6,500	$7,500	$1,000
401k/403b Total Contribution <50	$61,000	$66,000	$5,000
401k/403b Total Contribution 50+	$67,500	$73,500	$6,000
457b Contribution	$20,500	$22,500	$2,000
Traditional IRA Contribution	$6,000	$6,500	$500
Traditional IRA Catch-Up Contribution	$1,000	$1,000	$0
Roth IRA Contribution	$6,000	$6,500	$500
Roth IRA Catch-Up Contribution	$1,000	$1,000	$0

2023 Social Security COLA

Social Security payments have been increased by 8.7% in 2023. Those that are already taking Social Security payments, will see their payments increase in January of 2023. Those that are not yet taking payments will have the increase applied to their future benefits.

Wrap-up

This is only the tip of the iceberg, but we wanted to highlight the biggest and most impactful changes to this year and next. Many details have yet to be flushed out, and we should know more regarding how the new rules will be interpreted and administered in the coming weeks, months, and years.

We feel it is important to be aware of the rapidly changing landscape, and how it may impact your retirement plan. Some changes may be irrelevant to you while other changes may require that you act to optimize your plans and minimize taxes.

H.R.2954 – Securing a Strong Retirement Act of 2021 – https://www.congress.gov/bill/117th-congress/house-bill/2954/text#toc-HB9B18B5F05D04C1F8F7B67AC535C6314