“David, What’s SECURE 2.0 and how does it affect my company’s retirement plan?”

The rules change and my phone rings. That’s just how things work around here.

“Glad you asked, Sarah. I’ll take care of the details for you of course, but in a nutshell SECURE 2.0 is new legislation that came out at the end of December, 2022. The bill contained a number of provisions that were favorable to retirement plans.”

“That doesn’t sound so bad,” said Sarah.

“It’s good news actually,” I explained. “Some of the changes affected required minimum distribution (RMD) rules. RMDs are mandatory distributions that start at about 4% of your account balance and increase a certain percentage each year that must be taken from a qualified retirement plan or IRA when you reach a certain age. Prior to the SECURE Act, the RMD age was 72. In 2023 the RMD age was pushed back to 73. But effective in 2033 the RMD age will be increased to 75.

“Why is that good news?” asked Sarah.

“Well,” I continued. “This allows folks who have saved for retirement to get an extra year, or in the case of 2033 a couple of extra years before they need to start pulling out their retirement money and pay taxes on it. In qualified plans you can delay your RMD until even after age 73 if you continue to work, provided you are not a greater than 5% owner of that company.”

“I think I get it,” said Sarah. “If I have a traditional IRA…”

“Actually, it’s a good thing you don’t have a traditional IRA. We set you up with a better plan. The delay of RMDs is not available for money in a traditional IRA; those monies must come out once you turn 73—or 75 in 2033—whether you’re still working or not!”

Sarah took a deep breath. “I’m glad to be on the right side of it. Is this a good change because we are living longer or maybe not a good change because people are working longer?”

I laughed. “Well it’s good news to qualified plan participants who can wait longer before they have to start pulling money out and paying taxes on it.

“Another piece of great news is that the penalty—the excise tax—for missed RMDs has been reduced from 50% of the amount missed to 25%. And the excise tax is reduced even further to 10% if the RMD is taken before an IRS audit or the second year after the year in which the excise tax penalty is imposed.”

“So I think what you’re saying,” said Sarah, “is that you don’t get double-whammied if you’ve already been penalized or audited.”

“That’s about it. Anything else I can do for you?”

“Thanks, I’m good,” said Sarah. “I’m just grateful to have someone on my team who stays on top of this stuff!”

Need help setting up a company retirement plan that delivers maximum benefits? Ask the experts at CRS to show you the possibilities.