SECURE 2 Enacted
On December 29, 2022, the SECURE 2.0 Act was enacted as part of the broader Consolidated Appropriations Act of 2023. The SECURE 2.0 Act makes substantial changes to the rules for retirement accounts.
Major changes in the new law include the following:
The law raises the age for determining the beginning date for required minimum distributions from age 72 to age 73. However, this change applies only to individuals who reach age 72 after December 31, 2022. The law also schedules a future increase to the age threshold, which will be effective after 2032.
The law reduces the penalty for failure to take a required minimum distribution from 50% to 25%, effective for the 2023 tax year. It also provides a further reduction of the penalty from 25% to 10%, if a taxpayer makes a corrective distribution during the “corrective window” period. The corrective window period can be up to two years after the year in which the penalty applies. However, the corrective window period ends earlier than two years if the IRS sends a notice of deficiency or assesses the penalty before the two-year period ends. In this case, the corrective window ends on the date of mailing of such a notice of deficiency or on the date of such an assessment.
The law creates a Roth option for SIMPLE and SEP plans, effective for the 2023 tax year. Such Roth contributions are made on an after-tax basis, but future qualified distributions are tax-free.
The law creates a Roth option for certain employer matching or nonelective contributions for the 2023 tax year. As a result, employer-sponsored 401(k), 403(b) and governmental 457(b) plans are permitted to provide participants with an option to receive such employer contributions on a Roth basis. Such Roth contributions are made on an after-tax basis, but future qualified distributions are tax-free.
The law allows employers of household/domestic employees to provide retirement benefits under a SEP plan, effective for the 2023 tax year.
The law modifies the credit for small employer pension startup costs, effective for the 2023 tax year.
The law also includes numerous other changes that are effective after 2023 along with many minor changes.
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