History of the SECURE ACT

The Setting Every Community Up For Retirement Enhancement Act (SECURE Act) was attached to a spending bill (the Further Consolidated Appropriations Act of 2020, or FCAA) and signed into law on December 20, 2019, taking effect on January 1, 2020.

The enactment of the original SECURE Act in 2020 made several changes to retirement planning: 

• It increased the required beginning date (RBD) for required minimum distributions (RMDs) from individual retirement accounts from 70 ½ to 72 years of age.
• It eliminated the age restriction for contributions to qualified retirement accounts. 
• It required that most designated beneficiaries withdraw the entire balance of an inherited retirement account within 10 years of the account owner’s death (some exceptions apply). 

SECURE 2.0 Act

On December 29, 2022, President Biden signed the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE 2.0 Act). The SECURE 2.0 Act made quite a few enhancements to clarify the original legislation. Several of the key enhancements include: 

• Raising the age for RMDs to 73 in 2023 and 75 by 2033. 
• Higher catch-up contributions are allowed for participants over 50 ($7,500 in 2023). 
• Early distributions are permitted for long-term care contracts without penalty. 
• Qualified charities can be named as remainder beneficiaries after the death of a disabled or chronically ill beneficiary without disqualifying the trust as a see-through trust. 
• 529 plans maintained for at least 15 years may be rolled over into a Roth IRA with a $35,000 lifetime limit, effective 2024. 

How SECURE 2.0 May Impact Your Beneficiaries

Following the enactment of both SECURE Acts, Inherited retirement accounts will not provide the same benefits to non-spouse beneficiaries. Without prompt and proper planning around the new laws, the 10-year withdrawal rule could significantly increase the tax bill for non-spouse beneficiaries. Prior to the SECURE Act, beneficiaries of inherited retirement accounts could take distributions over their life expectancy (i.e., “stretch” the distributions). Under both the SECURE Act and SECURE 2.0 Act, the shorter time frame (10 years) for taking distributions will likely accelerate the income tax due and may cause the beneficiaries to be bumped into a higher income tax bracket, receiving less of the funds in the retirement account than originally anticipated.

Because of this monumental change in the way inherited retirement accounts are treated, the new provisions and exceptions in the SECURE 2.0 Act may change the decisions you have made for your intended beneficiaries and alter the path to achieving your long-term goals. Reach out to your legal counsel to discuss options for your estate plan and retirements accounts as they relate to the SECURE 2.0 Act.