MANDATORY FOR PLANS
Effective for: RMDs made after 12.31.2022 for employees who turn age 72 after that date
Applies to: IRAs, qualified plans, 403(b) plans, and 457(b) plans

SECURE 2.0 updates the “required beginning date” for purposes of the RMD rules, which is the age when participants must begin to receive benefit payments from retirement plans. A participant is required to begin receiving RMDs no later than the April 1 of the calendar year following the later of the calendar year in which the participant attained the applicable age or, for employer-sponsored retirement plans where the participant is not a 5% owner of the employer sponsoring the plan, the calendar year in which the participant retires.

Under SECURE 2.0, the applicable age is determined as follows:
1. For individuals who attain age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73.
2. For individuals who attain age 74 after December 31, 2032, the applicable age is 75.

It has been pointed out that this framework leaves ambiguity as it relates to someone born in 1959, who will attain both age 73 before January 1, 2033, and age 74 after December 31, 2032. On May 23, 2023, the House Ways and Means Committee and Senate Finance Committee leaders sent a letter to the Department of the Treasury and IRS acknowledging the issue and noting that they intend to introduce a technical correction to correct the language.

MANDATORY FOR PLANS
Effective for: Distribution taxable years beginning after 12.31.2023
Applies to: 401(k) plans, 403(b) plans, and governmental 457(b) plans

Prior to SECURE 2.0, pre-death RMDs were required from designated Roth plan accounts even though they are not required from Roth IRAs. SECURE 2.0 makes this consistent by removing the pre-death RMD requirement for Roth plan accounts.

SECURE 2.0 also repeals the incidental death benefit requirements for Roth plan accounts.

MANDATORY FOR PLANS
Effective for: Calendar years beginning after 12.31.2023
Applies to: Qualified plans, 403(b) plans, and 457(b) plans

SECURE 2.0 permits a surviving spouse of a deceased participant to irrevocably elect to be treated as the employee. If the surviving spouse does so, the date RMDs are required to begin will not be earlier than the date on which the employee would have attained the applicable RMD age, and if the surviving spouse dies before distributions to the surviving spouse begin, the rules will be applied as if the surviving spouse was the employee.

Further, SECURE 2.0 directs the Department of the Treasury to amend regulations to provide that if the surviving spouse is the employee’s sole designated beneficiary and makes this election, then the applicable distribution period for distribution calendar years after the distribution calendar year including the employee’s date of death is determined under the uniform life table.

This rule is similar to what already applied for IRAs.

PLAN SPONSORS SHOULD BE AWARE OF CHANGE
Effective for: Taxable years beginning after 12.29.2022
Applies to: IRAs, qualified plans, 403(b) plans, and 457(b) plans

Prior law imposed an excise tax of 50% of the amount of an RMD that an individual failed to take as required from an IRA or retirement plan. SECURE 2.0 reduces this excise tax to 25%.

SECURE 2.0 further reduces this excise tax to 10% if the failure is corrected by the individual receiving the RMD from the plan and submitting a return reflecting the tax during the “correction window.” For this purpose, the “correction window” is the period beginning on the date on which the excise tax for the failure is imposed and ending on the earliest of:
1. The date of mailing of a notice of deficiency with respect to the tax,
2. The date on which the tax is assessed, or
3. The last day of the second taxable year that begins after the end of the taxable year in which the tax for the failure is imposed.

AFFECTED PLAN SPONSORS SHOULD BE AWARE OF CHANGE
Effective for: Calendar years beginning after 12.29.2022
Applies to: IRAs, qualified plans, 403(b) plans, and 457(b) plans

Under existing law, unless a deceased individual has an “eligible designated beneficiary,” distributions following the individual’s death must be completed within 10 years. Among others, disabled and chronically ill individuals can qualify as eligible designated beneficiaries. In addition, a special needs trust properly established for the benefit of a disabled or chronically ill individual can be an eligible designated beneficiary.

SECURE 2.0 expands this rule and provides that such a special needs trust can still be considered an eligible designated beneficiary even if the trust designates a charitable organization as the trust’s remainder beneficiary after the disabled or chronically ill individual’s death. This does not apply to a donor advised fund.