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New Opportunities with SECURE 2.0

Five Ways SECURE 2.0 Changed the Required Minimum Distribution Rules and Additional Qualified Charitable Distribution (QCD) Changes

By Jim Perrine CFP® Financial Planning Team Leader, Managing Director at MAI Capital Management

What Are Required Minimum Distributions (RMDs)?
Required minimum distributions, sometimes referred to as RMDs or minimum required distributions, are amounts that the federal government requires you to withdraw annually from traditional IRAs and employer retirement plans after you reach a certain age, or in some cases, retire.
Here is a brief overview of the top five ways that the new legislation changes the RMD rules:

1. Applicable Age for RMDs Increased
Prior to passage of the SECURE 1.0 legislation in 2019, RMDs were generally required to start after reaching age 70½. The 2019 legislation changed the required starting age to 72 for those who had not yet reached age 70½ before January 1, 2020. SECURE 2.0 raises the trigger age for RMDs to age 73 for those who reach age 72 after 2022.

2. RMD Penalty Tax Decreased
The penalty for failing to take a RMDs is steep – historically, a 50% excise tax on the amount by which you fell short of the required distribution amount. SECURE 2.0 reduces the RMD tax penalty to 25% of the shortfall, effective this year (still steep, but better than 50%).

3. Lifetime Required Minimum Distributions from Roth Employer Accounts Eliminated
Roth IRAs have never been subject to lifetime RMDs. Beginning in 2024, the SECURE 2.0 legislation eliminates the lifetime RMD requirements for all Roth employer plan account participants, even those participants who had already commenced lifetime RMDs.

4. Additional Option for Spouse Beneficiaries of Employer Plans
The SECURE 2.0 legislation provides that, beginning in 2024, when a participant has designated his or her spouse as the sole beneficiary of an employer plan, a special option is available if the participant dies before RMDs have commenced. This provision will permit a surviving spouse to elect to be treated as the employee, similar to the already existing provision that allows a surviving spouse who is the sole designated beneficiary of an inherited IRA to elect to be treated as the IRA owner.

5. New Flexibility Regarding Annuity Options
Starting in 2023, the SECURE 2.0 legislation makes specific changes to the RMD rules that allow for some additional flexibility for annuities held within qualified employer retirement plans and IRAs.

In addition to the above changes to RMD rules, the SECURE 2.0 legislation has made additional changes to Qualified Charitable Distributions (QCDs).

What are Qualified Charitable Distributions (QCDs)?
Qualified Charitable Distributions, sometimes referred to as QCDs, allows individuals who are 70½ years old or older to donate up to $100,000 total to one or more charities directly from a taxable IRA instead of taking their required minimum distributions. Here is a brief overview of the changes the new legislation made to the QCD rules.

1. QCD Limit of $100,000 Will Be Indexed for Inflation
Under current law, individuals who are 70½ or older may use a QCD to donate up to $100,000 to qualified charities directly from an IRA. IRS Section 307 indicates that the annual IRA QCD limit of $100,000 will be indexed for inflation, effective for tax years after 2023.

2. Expanded QCD Provision
IRS Section 307 also includes a one-time election of up to $50,000 (indexed for inflation) to a split-interest entity, including charitable remainder annuity trusts, charitable remainder unitrusts, and charitable gift annuities. There are numerous restrictions with this provision.

Disclosure: The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. MAI Capital Management, LLC (“MAI”) is a SEC registered investment adviser.

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