Secure Act 2.0 – What You Need to Know in 2023

In late December 2022, Congress passed the Consolidated Appropriations Bill (2023), part of this bill included a retirement bill known as SECURE Act 2.0.  This bill focuses on retirement accounts such as IRAs, Roth IRAs and employer retirement plans like 401(k)s, 403(b)s, SEP and SIMPLE IRAs.

These changes stretch from retro-active all the way to 2033 and beyond. But, in this article we’re just going to focus on what changes in 2023 and earlier.

• 10% Penalty Exception for Qualified Disaster Distributions – This allows for residents with their primary abide within a federally declared disaster zone to avoid the standard early withdrawal 10% penalty.  Their home must be within the declared disaster zone, they must take the withdrawal during or within 180 days of the declared disaster period and it is limited to a $22,000 withdrawal.  And this provision is retroactive all the way back to January 26, 2021.
• RMD changes - The RMD Required Beginning Date for Required Minimum Distribution (RMDs) has been raised to age 73 for those born between 1951 and 1959, or to age 75 for those born beginning in 1960.  If you are already taking your RMD, you must continue.
• SEP IRA and SIMPLE IRA Roth contributions allowed – The IRS has allowed for ROTH contributions into SEP and SIMPLE IRA’s, although it may take some time for most providers to include this option in their plans.
• RMD penalty reduced from 50% to 25%, and can be further reduced to 10% - In the past, if you failed to take your RMD there was a 50% penalty, on top of applicable federal and state taxes. This has been reduced to 25%, or it may be reduced all the way down to 10% if taken within 2 years of the original required year.
• Retroactive First-Year 401(k) Elective Deferrals for Sole Proprietors – Sole Proprietors can now, only in the first year they set up a 401k, wait until their tax filing deadline of the following year to make elective deferrals.  This does not apply to any subsequent years, nor does it apply to other business types.
• Retirement Plan Start-Up Credit Allowed up to 100% - Previously, employers with fewer than 100 employees could be qualified for start-up tax credits of up to 50% of administrative costs, up to $5,000. This is increasing to 100% of eligible start-up expenses for employers with up to 50 employees. In addition, a credit of up to $1,000 for each employee for eligible employer contributions could apply to employers with fewer than 100 employees, but this credit phases out between 51 to 100 employees.

Tax laws and regulations are constantly changing and keeping up with all these changes can be tough. Especially if it’s not your full-time job.  If you would like someone else to help keep up with the changes that matter most to you, give us a call at (336) 218-9344.  We have a team of CERTIFIED FINANCIAL PLANNERS™, Linus Whitlock and Logan Whitlock, that specialize in retirement and retirement income planning.  Let us keep up with changes in tax law so you can do what you want with your time.