SECURE Act 2.0 impact on IRAs: Some provisions effective now, others delayed

On December 29, 2022, President Biden signed into law the SECURE Act 2.0, included in the Consolidated Appropriations Act of 2023. This long-awaited retirement legislation includes many provisions, some applicable to employer plans only, some applicable to individual retirement accounts (IRAs) only, and others applicable to both. Furthermore, many of the provisions were effective on January 1, 2023, and others have a delayed implementation date.

Following is a summary of the more significant IRA provisions included in SECURE Act 2.0 that are effective in 2023 and in subsequent years:

• The age at which required minimum distributions (RMDs) must begin is increased from age 72 to age 73 for years after 2022. This essentially means there will not be any new RMD recipients in 2023 that would otherwise have had a required beginning date (RBD) of April 1, 2024. In other words, IRA owners born in 1951 or later can wait until the year they attain age 73 to begin taking RMDs and have an RBD of April 1 of the following year. Keep in mind that anyone who attains age 73 in 2023 did attain age 72 in 2022 so nothing changes for these individuals, keeping in mind that they have until April 1, 2023, to satisfy their 2022 RMD and December 31, 2023, for their 2023 RMD.
• Traditional and Roth IRA catch-up contribution amounts, currently $1,000, available to individuals who are age 50 or older by the end of the year for which a regular contribution is made will be subject to annual cost-of-living adjustments beginning after 2023.
• The excess accumulation penalty tax applicable to an RMD that was not taken timely by an IRA owner or beneficiary is reduced from 50 percent (of the shortfall) to 25 percent, and possibly 10 percent if taken by a defined deadline, beginning in 2023.
• Federally declared disaster area distributions (i.e., ‘qualified disaster recovery distributions’) taken by an affected individual are allowed for amounts up to $22,000 and are exempt from the 10 percent early distribution penalty tax.
• Earnings attributable to an excess contribution will be exempt from the 10 percent early distribution penalty tax. Likewise, earning attributable to an unwanted contribution (i.e., an otherwise eligible contribution removed by the IRA owner’s tax filing due date) will exempt from the 10 percent early distribution penalty tax.
• An IRA distribution taken by a terminally ill individual will be exempt from the 10 percent early distribution penalty tax.
• An IRA distribution taken by a domestic abuse victim will be exempt from the 10 percent early distribution penalty tax beginning in 2024.
• The Savers Tax Credit will be simplified for years after 2026.

For more information on these and other SECURE Act provisions please download the CCH Incorporated Tax Briefing / Consolidated Appropriations Act.