Phil Moeller: What's in the new SECURE 2.0 law?

Written by Phil Moeller, UnitedHealthcare Contributor, Medicare And Retirement Expert


The SECURE 2.0 law, enacted in late 2022, authorized roughly 100 changes to the rules for retirement accounts.

Perhaps the biggest impact of the law involves the annual required minimum distributions (RMDs) from retirement accounts, a change that took effect last year. “You generally must start taking withdrawals from your traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022),” according to the Internal Revenue Service.

It’s possible to even wait until April of 2025, but Fidelity Investments notes that this is a one-time extension that applies only to first-time RMDs, meaning such people would then need to take two RMDs in 2025. The law will increase the minimum RMD age to 75 beginning in 2033.

Penalties for failing to take RMDs have also been reduced, from 50 percent to 25 percent. And if you remedy the failure promptly, the penalty may be reduced to 10 percent. Check for details with the financial institution managing your account.

Here are some other major changes in the law:

Contributions

Beginning in 2025, people aged 60 to 63 who are still contributing to employer retirement accounts will have higher “catch-up” contribution limits. The limits, now $7,500 a year, will rise to the greater of $10,000 or 50 percent more than a person’s regular catch-up amount. There is an income test here that applies to higher-earning taxpayers. Future limits will be indexed to inflation.

The Schwab investment firm’s take on SECURE 2.0 provides this example: “A 62-year-old could contribute $22,500 to a 401(k), plus 150 percent of the regular $7,500 catch-up contribution, or $11,250 ($7,500 times 1.5)—for a total of $33,750.”

Roth Accounts

There are different RMD rules for Roth IRAs and qualified employer plans -- 401(k)s and 403(b)s. Roth IRAs are exempt from RMDs until the owner dies. Roth employer plans have had RMDs, including those due by April 1 for the 2023 tax year. For 2024 and later, however, RMDs will be eliminated for employer Roths. Details may be found in this IRS guide.

Roths are funded with post-tax dollars; account withdrawals are exempt from income taxes. Regular retirement accounts are funded with pre-tax dollars; withdrawals are taxed as ordinary income.

“Also starting in 2024,” Schwab says, “if you make more than $145,000, all your catch-up contributions will need to be made to a Roth account, using after-tax dollars.”

Charitable contributions

Some higher-earning retirees have found it attractive to donate all or part of their RMDs to charity. The new law expands this provision for people older than 70½; the specifics are complicated and may require expert guidance.

Penalty-free withdrawals

Roughly 20 early withdrawals are exempt from a 10-percent early withdrawal penalty. IRS.gov has the details but you’ll have to hunt for them in this guide. Here are a few:

  • People with a terminal illness who can reasonably expect to die within seven years, may make penalty-free withdrawals of any amount from IRAs and employer plans.
  • One-time hardship withdrawals of up to $1,000 are allowed, with the option to repay the distribution within three years.
  • Domestic abuse victims may be eligible to withdraw the lesser of $10,000 (indexed for inflation) or half of their account balance.

Author bio

Philip Moeller is the principal author of the Get What’s Yours series of books about Social Security, Medicare, and health care. Read his Substack newsletter and his posts on Threads @healthauthor.

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