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Secure Act 2 - 0 2023 SIE

The document summarizes key changes to retirement plans contained in the SECURE 2.0 Act, including: 1) Changes to required minimum distributions, including increasing the age to 75 and reducing penalties. 2) Allowing employers to contribute Roth 401k matching funds and offer SIMPLE Roth accounts and SEP Roth IRAs beginning in 2023. 3) Permitting penalty-free $1,000 emergency withdrawals from qualified plans each year starting in 2024. 4) Allowing unused 529 funds to be rolled over to a Roth IRA beginning in 2024 under restrictive conditions.

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191 views4 pages

Secure Act 2 - 0 2023 SIE

The document summarizes key changes to retirement plans contained in the SECURE 2.0 Act, including: 1) Changes to required minimum distributions, including increasing the age to 75 and reducing penalties. 2) Allowing employers to contribute Roth 401k matching funds and offer SIMPLE Roth accounts and SEP Roth IRAs beginning in 2023. 3) Permitting penalty-free $1,000 emergency withdrawals from qualified plans each year starting in 2024. 4) Allowing unused 529 funds to be rolled over to a Roth IRA beginning in 2024 under restrictive conditions.

Uploaded by

Henry Jose Codallo Siso
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Content Update

Course: Securities Industry Essentials (SIE) Exam


Date: January 3, 2023
Author: Chuck Lowenstein
Topic: SECURE Act 2.0

On the night of December 29, 2022, President Joe Biden signed the $1.7 trillion
omnibus spending package which contains the SECURE 2.0 Act—an almost 400 page
package of retirement reform that will have widespread implications for the industry
and will increase the savings potential for many Americans. SECURE 2.0 includes
changes that will likely be testable as well. It is important to recognize that many of the
changes will not take effect until 2025 and the regulators generally do not ask
questions about regulations that are not currently in effect.

Here are the high points of SECURE 2.0. Those points that we believe will begin to
appear this year (2023) are bolded.

1. Changes to RMDs

a. Anyone turning 73 after December 31, 2022 is not required to take


distributions until age 73. If you turned 72 last year (2022), you must
take your RMD as originally scheduled.

b. The age for RMDs jumps to 75, but not until 2033 (and we hope you will
have passed the exam well before then).

c. The 50% tax penalty for insufficient distributions is reduced to 25% of


the amount not taken. However, the penalty is 10% if the account
owner withdraws the RMD amount previously not taken and submits
a corrected tax return in a timely manner.

d. Even though not taking effect until 2024, it could be important to know
that the requirement for RMDs from Roth 401(k), 403(b), and 457(b)
plans is removed.

K APL AN F IN ANCIAL E DU CA T ION


332 Front Street South, Suite 501, La Crosse, WI 54601 | www.kaplanfinancial.com | 800.824.8742 or 866.963.8329
Kaplan Financial Content Update Page 2
January 3, 2023

2. Catch-up provisions.

a. The $1,000 additional contribution to IRAs for those age 50 and older
will be indexed for inflation in $100 increments beginning in 2023.
That number will probably be available near the end of the year and is
unlikely to be tested.

b. There are bigger changes coming in 2025 so we will hold off until then
before revising any of our material.

3. Roth matching of employer contributions.

a. An example: You are employed by a company that offers a 4% match


to your 401(k) plan. If the company also offers and Roth 401(k),
starting in 2023, you can ask your employer to put any or all of the
match into the Roth 401(k). If this is done, the amount contributed is
immediately vested and is reported as current income (All Roth
contributions are made with after tax funds).

4. Additional Roth plans

a. Beginning 2023, employers may offer SIMPLE Roth accounts, as well


as SEP Roth IRAs. Prior to this, contributions were solely of pre-tax
funds (but fully taxable when withdrawn).

5. Financial incentives to encourage participation

a. Although we haven’t seen a specific dollar limit mentioned,


beginning in 2023, an incentive, such as a gift card, may be offered
to employees who decide to participate in the employer’s plan. The
act refers to “small, immediate financial incentives”

6. Emergency withdrawals starting in 2024

a. 403(b) plans now have the same hardship withdrawal rules as have
existed with 401(k) plans
Kaplan Financial Content Update Page 3
January 3, 2023

b. Separate from the hardship withdrawal provisions, participants in a


qualified plan may take one penalty-free withdrawal of up to
$1,000 per year for “unforeseeable or immediate financial needs
relating to personal or family emergency expenses.” Participants
may repay this withdrawal within three years. Only one withdrawal
per three-year repayment period is permitted if the first withdrawal
has not been repaid.

c. There is an exception from the 10% early distribution penalty for


those with a terminal illness. Oddly enough, unlike the usual
requirement that death is expected within 24 months, here it is 84
months (seven years).

d. The act allows retirement plans to permit participants that self-


certify that they experienced domestic abuse to withdraw a small
amount of money (the lesser of $10,000, indexed for inflation, or 50
percent of the participant’s account). Additionally, a participant has
the opportunity to repay the withdrawn money from the
retirement plan over 3 years and will be refunded for income taxes
on money that is repaid.

7. Section 529 plan rollovers to a Roth IRA

a. Beginning in 2024, unused 529 funds may be rolled over into a Roth
IRA. It is important to note that the conditions are extremely
restrictive and because of the complexity, it is unlikely that this
would be tested in anything other than a very, very general
statement.

8. Surviving spouse options

a. An additional choice is available beginning in 2024. A surviving


spouse can elect to be treated as the deceased spouse. That means
deferring RMDs until the deceased spouse would have been required
to take them and using the deceased spouse’s table for computing
Kaplan Financial Content Update Page 4
January 3, 2023

the RMDs. This will be attractive when the deceased spouse is


younger than the surviving one.

Summary:

With an act that is almost 400 pages long, there is much more than we have
covered here. Using our many decades of experience, we have selected those
items that we believe are most relevant to the exam.

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