SECURE 2.0 Affects RMDs & More

The 2022 Setting Every Community Up for Retirement Enhancement 2.0 Act ( SECURE 2.0 or the Act ), enacted Dec . 29 , 2022 , affects required minimum distributions ( RMDs ) and other retirement plan and tax provisions . Selected highlights follow .

RMDs Old Law : Under IRC Sec . 401 ( a )( 9 ), the following retirement plans are subject to the RMD rules , requiring benefits to be distributed , or commence to be distributed , by the required beginning date ( RBD ):

• Employer-sponsored qualified retirement plans [ e . g ., under Sec . 401 , 403 ( b ) or 457 ( b )];

• Traditional IRAs [ Sec . 408 ( a )]; and

• Individual retirement annuities [ Sec . 408 ( b )]. RBDs are as follows :

• IRAs : April 1 following the calendar year in which the IRA owner attains 72 .

• For employer-sponsored qualified plans :

• Non-5 percent employee owners : April 1 following the later of the calendar year in which the employee attains age 72 or retires .

• 5-percent employee-owners : Same as for IRAs , even if the employee continues to work after age 72 .

New Law : For distributions required after 2022 , for individuals attaining 72 after 2022 , the age used to determine RBDs is increased to age 73 starting Jan . 1 , 2023 ( for individuals attaining age 72 after 2022 and age 73 before 2033 ), and to age 75 starting Jan . 1 , 2033 ( for individuals attaining age 74 after 2032 ).

Reduced Excise Tax Old Law : Under Sec . 4974 ( a ), a 50 percent excise tax was imposed on a payee under a qualified plan , IRA or eligible deferred compensation plan [ under Sec . 457 ( b )] if a distribution during the payee ’ s tax year is less than that year ’ s RMD .

New Law : The Act reduces this 50 percent tax to 25 percent .

The Act also adds Sec . 4974 ( e ), providing that if the failure to take the RMD is timely corrected , the 25 percent tax is reduced to 10 percent .

New Sec . 4974 ( e ) specifies that if during the “ correction windows ” a taxpayer receives a shortfall of distributions from a plan causing the excise tax and files a return during this window showing this tax , the failure to receive the proper RMD will result in only a 10-percent excise tax .

The “ correction window ” begins when this excise tax is imposed on an RMD shortfall and ends on the earliest of :

• The date a notice of deficiency regarding this tax is mailed ;

• The date this tax is assessed ; or

• The last day of the second tax year beginning after the end of the tax year in which this excise is imposed . These provisions apply to tax years beginning after Dec . 29 , 2022 .

Surviving Spouses Old Law : A surviving spouse that was designated as the beneficiary of an employee who died before the RMDs began under the employer ’ s plan received a more favorable distribution period of the deceased spouse ’ s interest in that plan if the surviving spouse rolled that interest into an IRA .

New Law : Effective for calendar years beginning after 2023 , if an employee dies before RMDs began under the employer ’ s plan and designated the surviving spouse as the sole beneficiary , the surviving spouse may elect to be treated as the employee for RMD purposes .

Distributions must begin not earlier than when the deceased employee would have attained the age used to determine the

RBD . If the surviving spouse dies before distributions begin , that spouse is treated as the employee to determine the distribution period .

This election must be made in the time and manner prescribed by the IRS , must include a timely notice to the plan administrator and cannot be revoked without IRS consent .

The IRS is directed to amend Regs . Sec . 1.401 ( a )( 9 ) -5 , Q & A 5 ( or successor regulations ) to provide that if the surviving spouse is the employee ’ s sole designated beneficiary and elects to be treated as the employee ( as described above ), the distribution period for distribution calendar years after the distribution calendar year , including the deceased employee ’ s date of death , is determined under the uniform lifetime table [ Act Sec . 327 ( b )].

Tax-Free Rollovers Old Law : No provision .

New Law : Effective for distributions after 2023 , the Act permits beneficiaries of Sec . 529 saving accounts for qualified tuition programs , open for more than 15 years , to make trusteeto-trustee rollovers from these accounts to Roth IRAs , without tax or penalty , of any balance after education is completed .

The rollover cannot exceed contributions to the account plus earnings more than five years before the rollover . Total rollovers cannot exceed $ 35,000 over the beneficiary ’ s lifetime . Rollovers are subject to the Roth IRA annual contribution limits , except the limit based on the taxpayer ’ s adjusted gross income .

Stuart R . Josephs , CPA has a San Diego-based Tax Assistance Practice that specializes in assisting practitioners in resolving their clients ’ tax questions and problems . Josephs , immediate past chair of the Federal Subcommittee of CalCPA ’ s Committee on Taxation , can be reached at ( 619 ) 469-6999 or stuartrjosephs @ yahoo . com . www . calcpa . org MARCH / APRIL 2023 CALIFORNIA CPA 19