SECURE Act 2.0

At the end of 2019 Congress passed the SECURE Act which contained a number of changes to retirement accounts that I detailed in several blog posts in 2020 and then again in 2021 and 2022 as follow up regulations addressed some unanswered questions. Congress continued to tinker with IRAs and retirement plan rules with SECURE Act 2.0 which was passed by Congress as part of a $1.7 trillion spending package last week.

While the new law contains incentives designed to encourage more employers to offer 401ks and other tax deferred plans to its employees and to encourage more employees to participate in such plans, it also contains changes that impact the rules with regard to withdrawing funds from retirement accounts.

SECURE Act 1.0 raised the required minimum distribution age (RMD) from 70.5 to 72. That is the age by which an account owner must start withdrawing funds from his/her retirement account. SECURE Act 2.0 increases the age further. Starting in 2023 account owners must start taking RMDs when they turn 73. In 2033 the age goes up again to 75.

The new law also allows, beginning in 2024, the withdrawal of up to $1000 from certain retirement plans for emergency expenses while waiving the 10% early withdrawal penalty. There is a limit of $1000 each year and the account owner must be given the opportunity to repay the withdrawal within the next 3 years. The new law also carves out an ability to withdraw funds free of the 10% early withdrawal penalty for individuals who have a terminal illness. The illness must be certified by a physician although it is not yet clear whether there will be further specific regulations to clarify what is necessary to satisfy this condition. Any distributions must be repaid within a time frame similar to withdrawals for other special conditions such as a birth or adoption of child. This optional withdrawal is available beginning in 2023.