Category Archives: the SECURE Act


New federal legislation has been enacted in connection with retirement plans beginning in 2023.  Here are highlights from this law, dubbed SECURE ACT 2.0: 

1.         Raising the Required Minimum Distribution (RMD) age to 73

Savers were required to begin taking RMDs at age 72.  (An RMD is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE IRA, by owners to avoid tax consequences.) The withdrawal amount is calculated by factors such as account value and longevity. The new law raises the RMD starting age to 73 in 2023 and to 75 in 2033. 

If you turn 73 this year you must take a distribution no later than April 1, 2024. The distribution for subsequent years would need to be made by Dec. 31 of that year.  Those who start withdrawing in 2024 would need to take two distributions — one for 2023 and one for 2024.

2.         Eliminating RMDs from a Roth 401(k)

Beginning in 2024, those with Roth 401(k) accounts will no longer have to take RMDs.  This change aligns Roth 401(k)s with Roth IRAs, which don’t require distributions during one’s lifetime.

3.         Reducing RMD tax penalties

The IRS assesses a tax penalty on account owners who fail to withdraw the full amount of their RMD or who fail to take any distribution whatsoever by the annual deadline.  The new law reduces the tax penalty to 25% — from 50% — on the RMD amount that wasn’t withdrawn.  If a taxpayer corrects the mistake in a timely fashion, the penalty is reduced to 10%.  The IRS can waive penalties if savers can demonstrate the shortfall was “due to reasonable error and that reasonable steps are being taken” to remedy it.

4.         Emergency withdrawals

Beginning in 2024, savers can make 1 withdrawal of up to $1,000 a year from an IRA or 401(k) for personal or family emergency expenses and the IRS will waive the 10% tax penalty. Savers  can self-certify the need for the funds and employers can rely on an employee to self-certify an event of hardship or unforeseeable emergency to make such a withdrawal. 

5.         SIMPLE IRAs and SEPs accept Roth contributions

In 2023, SIMPLE IRAs can accept Roth contributions, and employers can offer employees the ability to treat employee and employer SEP contributions as a Roth, either in whole or in part.

The SECURE ACT – now law

President Trump signed the SECURE Act as part of the government’s spending bill at the end of 2019 and it will inevitably affect most retirement savers, for better or worse.  Most of the bill takes effect in 2020.  The SECURE Act  — SECURE stands for “Setting Every Community Up for Retirement Enhancement” — puts into place numerous provisions intended to strengthen retirement security.  Here is a brief summary of the Act’s most important features: 

Annuities in 401(k) plans

The SECURE Act allows employers to offer annuities as investment options within 401(k) plans. Currently, employers hold the fiduciary responsibility to ensure these products are appropriate for employees’ portfolios, but under the new rules, the onus falls on insurance companies to offer proper investment choices. 

Increasing the required minimum distribution age and contribution age 

Previously, account holders with a 401(k) or IRA had to withdraw required minimum distributions (RMD) in the year they turned age 70.5. The SECURE Act increases that age to 72. The bill also eliminates the maximum age for traditional IRA contributions which was previously capped at 70.5 years old. 

No more stretch IRAs

Required minimum distributions have also changed for non-spousal account inheritors. Under the current law, beneficiaries who did not inherit their accounts from a husband or wife are in some cases allowed to withdraw required minimum distributions for their life spans.  This could be a few years or a few decades.  

The SECURE Act requires beneficiaries to withdraw all assets of an inherited account within 10 years. There are no required minimum distributions within those 10 years but the entire balance must be distributed after the 10th year. 

Multiple employer plans for small businesses

The Act broadens access to multiple employer plans for small businesses. Previously, companies may have avoided participating in that type of program because of the so-called “one bad apple” rule that stated if one employer did not meet the plan requirements, the plan would fail for all others involved. 

Under the SECURE Act, employers no longer have to share “a common characteristic,” such as being in the same industry. Employer-sponsored retirement plans would also be available to long term part time workers with a lower minimum number of hours worked.  The SECURE Act drops the threshold for eligibility down to either one full year with 1,000 hours worked or three consecutive years of at least 500 hours worked.

Encouraging auto-enrollment 

Finally, the SECURE Act encourages employers to automatically enroll workers into their retirement plans by offering tax incentives. Auto-enrollment is a simple but effective means to get people saving more for their futures. Under the SECURE Act, small employers will get a tax credit to offset the costs of starting a 401(k) plan or SIMPLE IRA plan with auto-enrollment, on top of the start-up credit they already receive.