The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act is a bipartisan law that was signed into law at the end of 2022. It includes changes to many aspects of retirement plans to help Americans save more for retirement.
Required Minimum Distributions (RMDs)
SECURE 2.0 included a number of changes to the rules for required minimum distributions (RMDs) for IRAs and retirement plans. RMDs apply to IRAs (including SIMPLE IRAs and SEP IRAs) and to employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans.
Changes in the rules for RMD under SECURE 2.0 include:
• The age at which account owners must start taking RMDs increased from age 72 to age 73 in 2023, and is scheduled to increase to 75 in 2033.
• The excise tax for failing to take the full RMD amount in a given year was reduced from 50% to 25% in 2023. The tax is reduced to 10% if the RMD is corrected within two years.
• The statute of limitations for assessing the penalty was delayed for certain people, including taxpayers with a terminal illness and survivors of domestic abuse.
• Roth IRA owners are no longer required to take withdrawals during their lifetime, but beneficiaries are subject to the RMD rules after the account owner’s death. Inherited IRA beneficiaries will be required to take RMD’s and must use the 10-year withdrawal schedule. However, the IRS has delayed the implementation of the RMD rules related to inherited IRA’s until 2025. Thus, no penalty will apply to a missed RMD for an inherited IRA in 2023 or 2024.
Other Retirement Plan Changes
The limits for catch-up contributions will increase in 2025. Starting in 2025, eligible participants between the ages of 60 and 63 can make “super-catch-up contributions” of up to 150% of the regular catch-up limit.
Employers can automatically enroll workers in 401(k) plans. Employers can match student loan payments with retirement contributions to 401(k), 403(b), governmental 457(b), and SIMPLE IRAs.
Employer Credit for Retirement Plans
Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA or qualified plan like a 401(k) plan. Eligible startup costs consist of ordinary and necessary costs to set up and administer the plan, and to educate employees about the plan.
Employers qualify to claim this credit if the following conditions are met:
• 100 or fewer employees received at least $5,000 in compensation from the employer for the preceding year.
• At least one plan participant was a non-highly compensated employee (NHCE) with compensation of not more than $155,000 in tax year 2024. This requirement is to ensure that a company’s retirement plan does not unfairly benefit high income earners.
• In the three tax years before the first year the employment is eligible for the credit, the employees were not substantially the same employees who received contributions or accrued benefits in another plan sponsored by the employer.
The amount of the credit depends on how many people are employed by the business:
• With 50 or fewer employees who received at least $5,000, the credit is 100% of eligible startup costs, up $250 multiplied by the number of NHCEs who are eligible to participate in the plan, up to a total of $5,000.
• For 51-100 employees who received at least $5,000, the credit is 50% of eligible startup costs, up to $250 multiplied by the number of NHCEs who are eligible to participate in the plan, up to a total of $5,000.
Qualified businesses may claim the credit using Form 8881, Credit for Small Employer Pension Plan Startup Costs.
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