SECURE ACT OF 2022

By Donna Furey, Esq.

On December 29, 2022, President Biden signed a law which makes major changes to IRAs, 401(a), 401(K), 403(b) and 457(b) retirement plans (hereinafter “retirement plans”) with the passage of the SECURE 2.0 ACT OF 2022 (“Setting Every Community Up for Retirement Enhancement 2.0”). Some changes are discussed below.

The age at which a person must take Required Minimum Distributions (RMDs) from their retirement plan has increased from age 72 to 73 in 2023 and increases to 75 in 2033. This allows the retirement plan to grow tax-deferred before a person is required to take RMDs.

SECURE 2.0 reduces the penalty for failure to take RMDs from 50 to 25 percent. Furthermore, if the failure is corrected in a timely manner, as defi ned under the Act, the failure is further reduced to 10 percent beginning in 2022. However, it exempts the 10 percent penalty on the distribution of up to $2,500.00 per year for the payment of premiums for certain specifi ed long-term care insurance contracts effective 2025.

Unfortunately, the provisions in the SECURE ACT of 2019 eliminated “Stretch IRAs.” Previously, the owner of an IRA or similar retirement plan could leave their retirement plan assets to benefi ciaries and the benefi ciaries would not have to take RMDs until they reached 70½. Under the 2019 law, the beneficiaries must begin to take RMDs immediately and withdraw the entire IRA within 10 years of the owner’s death and pay the required income taxes on withdrawals. This change does not apply to benefi ciaries who are surviving spouses, minor children, chronically ill, disabled, or no more than 10 years younger than the deceased IRA owner.

In light of these new laws, you may want to review your estate plan with your attorney and financial advisor.