The Consolidated Appropriations Act, 2023 was signed into law by President Joe Biden on December 29, 2022. In addition to preventing a government shutdown, the act includes several provisions related to retirement plans. These provisions are commonly referred to as “SECURE 2.0,” because they are meant to build upon retirement plan changes that were implemented under the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. Below is a brief summary of several provisions of SECURE 2.0 that may be of interest. 

Provisions that are effective on January 1, 2023 include:

• Required minimum distribution (RMD) age increase: Increases the age at which individuals must start to take RMDs from their retirement accounts to age 73 instead of age 72. Note that this does not apply to individuals who turned 72 in 2022. These individuals will still need to take an RMD by April 2023. 
• Reduced penalty for missed RMD: Reduces the penalty for not taking an RMD from 50% to 25%. The penalty could be further reduced to 10% if the missed RMD is corrected in a timely fashion
• Qualified charitable distribution (QCD) option: The current QCD rule allows individuals who are 70½ or older to donate up to $100,000 each year to one or more charities directly from a taxable individual retirement account (IRA). With SECURE 2.0, a one-time QCD election can be made for distributions up to $50,000 to a charitable gift annuity or a charitable remainder trust.

Provisions that are effective on January 1, 2024 include:

• Increased IRA catch-up payments: Indexes for inflation the current $1,000 annual maximum IRA catch-up payment for those 50 and older.
• Increased QCD amounts: Indexes for inflation the two QCD amounts described above.
• 529 plan to Roth IRA rollovers: Allows tax-free and penalty-free rollovers from 529 college savings plans to Roth IRAs, with certain limitations. The lifetime rollover limit is $35,000, and the funds must be moved from a 529 account to a Roth IRA that benefits the same beneficiary. Also, the 529 account must have been in existence for at least 15 years prior to the rollover.

Provisions that are effective in 2025 or later:

• Increased 401(k) catch-up payments: For those aged 60-63, increases the annual maximum 401(k) catch-up payment ($7,500 in 2023) to the greater of $10,000 or 50% more than the catch-up amount in 2024 (as indexed). This is effective January 1, 2025. Also, these catch-up amounts for individuals aged 60-63 will be indexed for inflation, beginning as of January 1, 2026.

• Additional RMD age increase: Increases the age at which individuals must take RMDs to age 75, beginning as of January 1, 2033.

These are just a few of the highlights of SECURE 2.0. Due to the complexity of these issues, it is important that you talk with your qualified tax and legal advisors about the impact of SECURE 2.0 on your specific situation.

Leslie Kehoe is a senior wealth strategist with CIBC Private Wealth, US, and has over 25 years of industry experience.