The SECURE Act — Setting Every Community Up for Retirement Enhancement — was passed in 2019. After that, SECURE Act 2.0 was passed in December 2022 and went into effect January 1, 2023.

The SECURE Act 2.0 establishes new rules regarding the timeline that individuals must adhere to with regard to taking required minimum distributions (RMDs) from their retirement accounts. The SECURE Act 2.0 also reduces penalties attached to RMDs, among other things.

Important Changes Taxpayers Need to Know About

The SECURE Act increased the age at which taxpayers must start taking RMDs to 72. But with the passage of the SECURE Act 2.0, the age increased to 73. In 2030, the age will increase to 74, and in 2033, it will be 75.

Before any legal changes went into effect, the penalty for failing to withdraw any RMDs was 50%, but the new laws have reduced the penalty by half, to 25%. Additionally, the penalty will be reduced to 10% for individual retirement account owners if the account owner withdraws the RMD amount previously not taken and submits a corrected tax return in a timely manner.

Keep in mind that tax-related consequences can go into effect if an RMD is not taken in a timely manner, let alone ever. Also, other factors will influence RMDs over time, such as individuals no longer needing to withdraw RMDs from employer-related Roth accounts beginning in 2024.

In time, a Roth-associated emergency savings account can be added to a defined contribution retirement plan as well. In 2025, the limit for catch-up contributions will increase for those who are at least 50 years old. In the same year, taxpayers aged 60 to 63 will be able to add $10,000 more to their accounts on an annual basis. These dollar values will be indexed to inflation.

Please note that catch-up contributions for people who earn more than $145,000 will need to be made to a Roth account, with after-tax dollars.

Furthermore, in 2025, employers will be permitted to auto-enroll eligible employees into defined contribution plans whereby the respective employees will automatically make deferrals between 3% and 10% of eligible compensation. Employees would be required to affirmatively opt out of this feature to avoid the auto-enrollment. Businesses that employ no more than 10 workers as well as companies that have been in operation for fewer than three years are exempted from the automatic enrollment provisions. Also in 2025, portability services might roll out, allowing retirement plans to provide automatic transfers of certain retirement accounts to a new plan if and when an employee switches jobs.

Additionally, part-time employees who have worked for a company for two years and performed at least 500 hours of work are eligible to enroll in company retirement plans. Previously, three years of service were required.

Starting in 2024, employers may opt to make contributions to workplace savings plans on behalf of employees with student loan debt even if those employees do not make retirement plan contributions. Certain 529 plan assets can be rolled over to a Roth IRA for the beneficiary, subject to annual Roth contribution limits and an aggregate lifetime limit of $35,000.

The SECURE Act 2.0 expanded the exceptions to the current 10% penalty for early withdrawal from a retirement account. Also beginning in 2024, the maximum contribution amount for qualified charitable distributions will be allowed to increase based on the inflation rate.

In addition, beginning last year, taxpayers have a one-time opportunity to use a qualified charitable distribution to fund a Charitable Remainder Unit Trust, Charitable Remainder Annuity Trust or Charitable Gift Annuity up to $50,000.

This is just a summary of the more prominent provisions in the Secure Act 2.0. To fully understand what impact the Secure Act 2.0 may have on you personally, and when, consider consulting with a CironeFriedberg tax professional before taking any action.

You may have many questions about working after retirement. Can you still contribute to retirement accounts? How does working affect your required minimum distributions (RMDs)?

Let’s start with contributing to retirement accounts. You should be able to contribute to your employer’s qualified retirement plan regardless of your age. In some instances, you can also contribute to a traditional or Roth IRA as long as you have earned income. Whether the IRA contribution is tax deductible depends on your income and whether you’re an active participant in an employer-provided retirement plan.

But what about receiving funds from retirement accounts? Even if you are working, once you reach age 73, you must take RMDs from a traditional IRA. Other accounts that are subject to RMD rules include:

403(b) plans.
457 plans.
Profit-sharing plans.
IRA-based plans — SEPs, SARSEPs and SIMPLE IRAs.

The rules for qualified employer plans such as 401(k)s are different. If you continue to work past age 73 and don’t own more than 5% of the business you work for, most plans allow you to postpone RMDs from your current employer’s plan until no later than April 1 of the year after you stop working. In this way, you could continue to grow your retirement savings on a tax-deferred basis.

If you have a 401(k) from a prior employer, it may still be subject to the RMD requirement.

It is important to note that Roth IRAs are not listed above, as there are no RMD’s on your own Roth IRA’s. The amount you’re required to withdraw in RMDs of non-Roth accounts depends on the balance in your accounts and your life expectancy. The IRS publishes life expectancy tables to assist you in calculating the amount.

Some considerations

You will want to ensure you take the required RMDs each year and that they are calculated correctly. Not taking RMDs or withdrawing too little could result in a tax penalty of 25% of the amount not withdrawn. It’s also important to remember that your spouse’s RMDs cannot be combined with yours.

Financial planners advise consolidating smaller accounts so that you do not miss an RMD or fail to include one in your calculations. RMDs must be calculated based on all accounts, but the RMD may be aggregated and withdrawn from one IRA. Inherited IRAs are also subject to RMD and may be subject to different withdrawal requirements.

Plan administrators, pension plan providers and human resources departments may have some ideas on whether your continuing or returning to work affects your benefits or pension payments or has other tax and retirement benefit implications, but you should also talk to your financial adviser or a tax planning expert as well. They can advise you when to take RMDs based on your intended retirement date to avoid triggering a tax penalty or having to double up on distributions in the same year.

HAVE QUESTIONS?

If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.

What You Need To Know About SECURE Act 2.0

Working in Retirement Can Affect Your Required Minimum Distributions

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