Secure Act 2.0 Flashcards
2023 provisions
- RMD age is raised to 73 for years 2023-2032. RMD age is 75 for 2033+
- RMD penalties are lowered from 50% to 25% or 10% if RMD is taken by end of second year it was due
- plans can allow ER matching contributions on a Roth basis
- SIMPLE and SEP IRA can now offer roth options
- QLACs may have up to 200k invested and 25% limit is eliminated
- additional 10% penalty exceptions added
- QCD indexed for inflation and one time 50k allowed to a CRAT or charitable gift annuity
2024 provisions
- IRA catch up of 1k is indexed for inflation
- catch up over 145k must be roth contributions (now 2026)
- established starter 401k plans
- student loan payments eligible for employer matching contributions
- roth 401k, 403b, and 457 RMD eliminated
- conversion from 529 to roth allowed up to 35k ( plan must exist for 15 yrs and amount converted must be less than amount contributed and ira limit for the year) (money added in last 5 years cant be converted)
- emergency savings accounts can be created within retirement plans
Premature distributions
- in service distributions can be allowed for 3 situations
1. attainment of specific age or years of service
2. hardship
3. attainment of 62 for DB plans
Attainment of specific age or years of service
- must occur after normal retirement age (MMP)
- after 59 1/2 (401k deferrals)
Hardship
- any age in any PSP
1. financial needs test (immediate heavy financial need)
2. resources test (amount withdrawn cannot exceed amount needed to satisfy need and participant can no other sources to satisfy need)
Pension protection act (PPA) in service withdrawal
- allows in service distributions as early as 62 from DB plans
- distribution will be treated as retirement income
Hardship withdrawals from profit sharing and stock bonus plans
- wont include unvested amount
- subject to ordinary income tax and 10% early withdrawal penalty
- 10% wont apply if 59 1/2 or disabled
- safe harbor distributions
1. medical expenses
2. tuition, room, board, edu expense for 12 mo
3. principal residence purchase
4. prevent eviction or foreclosure
5. funeral expenses
6. damage to principal residence
7. cannot be in excess of immediate need - cannot force a loan
- cannot limit deferrals after hardship
Penalties and requirements that apply to qualified plans and TSA distributions
- 10% penalty
Exceptions
- exceptions to 10% penalty for early distributions (before 59 1/2)
1. death
2. disability
3. equal periodic payments following separation of service
4. separate from service 55+
5. due to QDRO
6. medical expenses in excess 7.5% AGI
7. 5k for birth/adoption
8. federally declared disaster (limited)
Substantially equal payments
must meet all
- paid at least annually
- without changing amounts for longer of 5 yrs or until 59 1/2
- based upon life expectancy
- based upon reasonable rate of interest
- based on reasonable mortality assumption
No modification of substantially equal payments
- once payments begin they may not increase, decrease, or change prior to 59 1/2 or 5 yrs if longer
- if payments modified in any way, 10% tax applies to all payments received before 59 1/2
- exception: one time change allowed from annuity/amortization method to RMD method (used to reduce payments and tax)
Annuity distribution options
- Life annuity: payments for participants life
- Joint and survivor: payments to participant for life, at death beneficiary receives percentage for their life
- Life annuity with guaranteed payments: payments made for longer of life or some guaranteed period
- Annuity certain: specified amount monthly paid
- Lump sum: may be available
Qualified joint and survivor annuity (QJSA)
- post retirement DB for participants spouse
- qualified pension plans are required to provide QJSA option
- survivorship annuity must not be less than 50% or greater than 100% payable during joint lives
Qualified optional survivor annuity (QOSA)
- PPA requires second QJSA option called QOSA
- minimum QOSA must be 50% joint and survivor annuity
- can elect out only with written spousal consent during 180 day period before start
Qualified preretirement survivor annuity (QPSA)
- preretirement DB for spouse upon death of participant before QJSA start date
- must not be less than what wouldve been paid under QJSA