New Law: SECURE 2.0 Affects RMDs & More.

• Author: Josephs, Stuart R.

The 2022 Setting Every Community

Up for Retirement Enhancement 2.0 Act (SECURE 2.0 or the Act), enacted Dee. 29, 2022, affects required minimum distributions (RMDs) and other retirement plan and tax provisions. Selected highlights follow.

RMDs

Old Law: Under IRC Sec. 401(a)(9), the following retirement plans are subject to the RMD rules, requiring benefits to be distributed, or commence to be distributed, by the required beginning date (RBD):

* Employer-sponsored qualified retirement plans [e.g., under Sec.401, 403(b) or 457(b)];

* Traditional IRAs [Sec. 408(a)]; and

* Individual retirement annuities [Sec. 408(b)].

RBDs are as follows:

* IRAs: April 1 following the calendar year in which the IRA owner attains 72.

* For employer-sponsored qualified plans:

* Non-5 percent employee owners: April 1 following the later of the calendar year in which the employee attains age 72 or retires.

* 5-percent employee-owners: Same as for IRAs, even if the employee continues to work after age 72.

New Law: For distributions required after 2022, for individuals attaining 72 after 2022, the age used to determine RBDs is increased to age 73 starting Jan. 1, 2023 (for individuals attaining age 72 after 2022 and age 73 before 2033), and to age 75 starting Jan. 1, 2033 (for individuals attaining age 74 after 2032).

Reduced Excise Tax

Old Law: Under Sec. 4974(a), a 50 percent excise tax was imposed on a payee under a qualified plan, IRA or eligible deferred compensation plan [under Sec. 457(b)] if a distribution during the payee's tax year is less than that year's RMD.

New Law: The Act reduces this 50 percent tax to 25 percent.

The Act also adds Sec. 4974(e), providing that if the failure to take the RMD is timely corrected, the 25 percent tax is reduced to 10 percent.

New Sec. 4974(e) specifies that if during the "correction windows" a taxpayer receives a shortfall of distributions from a plan causing the excise tax and files a return during this window showing this tax, the failure to receive the proper RMD will result in only a 10-percent excise tax.

The "correction window" begins when this excise tax is imposed on an RMD shortfall and ends on the earliest of:

* The date a notice of deficiency regarding this tax is mailed;

* The date this tax is assessed; or

* The last day of the second lax year beginning after the end of the tax year in which this excise is imposed.

These provisions apply to tax years beginning after Dec. 29, 2022.

Surviving Spouses

Old Law: A...