By Ian Berger, JD
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As you may have read, Congress is considering passage of a $1.65 trillion spending bill that contains a number of retirement savings plan provisions. As of this morning (December 21), the bill has not been passed, and both houses of Congress only have until this Friday (December 23) to do so. If passed, President Biden is expected to sign the bill immediately.
The retirement provisions are known as the “SECURE 2.0 Act of 2022,” since they build on the original SECURE Act that was signed into law on December 20, 2019. But for IRA owners, the SECURE 2.0 changes are less dramatic than the original SECURE Act changes. For example, there’s no provision comparable to the original SECURE Act’s elimination of the stretch IRA and replacement by a 10-year payout rule. In addition, many SECURE 2.0 provisions don’t kick in until 2024 or even later.
One important change would delay the age when required minimum distributions (RMDs) are first required. Currently, the first RMD year is age 72. Under the proposed bill, the first RMD year would be age 73 starting in 2023 and age 75 starting in 2033.
The bill also contains a number of new exceptions to the 10% early distribution penalty for withdrawals before 59 ½. These include cases of domestic abuse, emergencies and terminal illness. These new exceptions have differing effective dates.
As a way of paying for the new retirement provisions, the bill allows or requires certain plan contributions to be after-tax Roth contributions. For example, SIMPLE and SEP plans would be able to accept Roth contributions, and plan catch-up contributions for higher income individuals would be required to be Roth contributions.
There are many other changes, including expanded qualified charitable contributions (QCDs), a reduced penalty for missing RMDs, and indexing of the IRA catch-up contribution. The plan changes include requiring automatic enrollment in newly-created plans, the elimination of lifetime RMDs for Roth 401(k)s, and higher catch-up contributions.
We will continue to follow this proposed legislation. If it passes, we’ll provide a more complete summary. Stay tuned to the Slott Report for any late breaking news.
In the meantime, Merry Christmas and Happy Holidays from all of us at Ed Slott and Company.