Secure Act 2.0

Question 1

2023 provisions

Answer 1

• 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

Question 2

2024 provisions

Answer 2

• 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

Question 3

Premature distributions

Answer 3

• 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

Question 4

Attainment of specific age or years of service

Answer 4

• must occur after normal retirement age (MMP)
• after 59 1/2 (401k deferrals)

Question 5

Hardship

Answer 5

• 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 resources test (amount withdrawn cannot exceed amount needed to satisfy need and participant can no other sources to satisfy need)

Question 6

Pension protection act (PPA) in service withdrawal

Answer 6

• allows in service distributions as early as 62 from DB plans
• distribution will be treated as retirement income

Question 7

Hardship withdrawals from profit sharing and stock bonus plans

Answer 7

• 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

Question 8

Penalties and requirements that apply to qualified plans and TSA distributions

Answer 8

• 10% penalty

Question 9

Exceptions

Answer 9

• 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)

Question 10

Substantially equal payments

Answer 10

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

Question 11

No modification of substantially equal payments

Answer 11

• 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)

Question 12

Annuity distribution options

Answer 12

• 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

Question 13

Qualified joint and survivor annuity (QJSA)

Answer 13

• 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

Question 14

Qualified optional survivor annuity (QOSA)

Answer 14

• 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

Question 15

Qualified preretirement survivor annuity (QPSA)

Answer 15

• preretirement DB for spouse upon death of participant before QJSA start date
• must not be less than what wouldve been paid under QJSA

Question 16

Rollovers

Answer 16

• used to consolidate for easier management, lower fees, better investment options
• qualified plan to qualified plan or IRA
• QDRO to IRA or qualified plan
• surviving bene to IRA or qualified plan
• 403b to qualified plan or IRA
• SIMPLE IRA to retirement plan after 2 yrs
• SIMPLE IRA to SIMPLE IRA if less than 2 yrs
• after tax contribs from qualified plan to traditional IRA or second DC account
• pretax contrib from IRA to qualified plan
• 457 to qualified plan or IRA
• 457 to 457 (nongov only)
• hardship cannot be rolled into another qualified plan

Question 17

SIMPLE IRA rollover

Answer 17

• 403b, 457, qualified plan to SIMPLE
• receiving SIMPLE has to be established for 2 yrs
• SIMPLE to qualified and IRA only if existing for 2 yrs

Question 18

IRA 60 day rule

Answer 18

• IRA owner can withdrawal part of balance and reinvest in within 60 days in another IRA
• only once each year per taxpayer (not per IRA)

Question 19

Direct transfer vs direct distribution

Answer 19

Direct distribution
- if participant receives direct distribution, plan must withhold 20%
- check made payable to participant
- 20% paid to IRS
- tax deferred if made to another qualified plan or IRA within 60 days

Direct transfer
- no 20% withholding
- funds directly go to qualified plan or rollover
- check not made out to them

Question 20

Conduit IRA

Answer 20

• accounts received from ER qualified plan may later be moved to another qualified plan by using conduit IRA
• ## holds the funds from qualified plan to be transferred to new qualified plan

Question 21

Required minimum distributions (RMD)

Answer 21

• ER retirement plan, traditional IRA, SEP, SIMPLE IRA
• owners and participants
• when reached required begin date (RBD)

Question 22

Required begin date (RBD)

Answer 22

IRAs, SEPs, SARSEPs, SIMPLEs
- april 1 of year following the year in which individual turned 73
- dec 31 year after

qualified plans (401k), 457, 403b
- still working and not 5% owner can delay RBD until april 1 the year following retirement
- more than 5% owner must take at 73 but can also still contribute

Question 23

RMD calculations

Answer 23

• previous yr ending balance / life expectancy number

Uniform Lifetime table
- over 10 yrs apart use regular joint life expectancy table

Question 24

Exception for joint life distributions

Answer 24

• sole beneficiary is employees spouse and spouse is more than 10 years younger
• permitted to elect longer period

Question 25

RMD penalties

Answer 25

- 25% tax for amount short of RMD - 10% tax if RMD is taken by end of second year following when it was due

Question 26

Qualified charitable distribution (QCD)

Answer 26

- direct transfer from IRA to qualified charity - 70 1/2 only - up to 100k per year - satisfys RMD without having to be taxed - no charitable deduction is allowed

Question 27

Owner dies before RBD

Answer 27

Spouse only beneficiary - rollover assets to own IRA and take distributions based on own RBD - keep assets in owners IRA and start distributions when owner would have been 73 Nonspouse beneficiaries - take distributions within 10 years (stretch eliminated)

Question 28

Owner dies beyond RBD

Answer 28

Spouse only beneficiary - rollover assets to own IRA and take distributions based on own RBD - keep assets in owners IRA and start distributions based on longer of 1. spouses life expectancy 2. no beneficiaries

Question 29

Nonspouse beneficiaries

Answer 29

- stretch eliminated - required to liquidate account within 10 years exceptions - spouse - person less than 10 years younger - minor child - disabled person - chronically ill person

Question 30

Spousal beneficiaries

Answer 30

- in year of death, RMD is zero - rollover assets to own or keep in deceased IRA - can rollover within 60days to own IRA if not an RMD

Question 31

Owner dies with no specified beneficiary

Answer 31

- in year of death RMD calculated based on uniform lifetime table - in years after death (before 73) 5 year rule applies

Question 32

Eligible designated beneficiaries (EDB)

Answer 32

- inherited IRA: entire balance of account be distributed within 10 yrs - EDB : 5 exceptions to this rule 1. owners surviving spouse 2. child less than 18 ( at 18 rule goes into effect) 3. disabled (use own life expectancy) 4. chronically ill 5. less than 10 years younger

Question 33

Pension Protection Act of 2006

Answer 33

- all non spouse beneficiary may transfer 401k, 403b, 457 (gov only) to IRA and withdrawal over 10 years - transfer to inherited ira to defer taxes

Question 34

Retiring early

Answer 34

- between 55 and 59 1/2 : can withdrawal from 401k without 10% penalty (not IRA)

Question 35

Qualified domestic relations orders (QDRO)

Answer 35

- retirement benefits cannot be assigned, alienated, garnished - 2 exceptions 1. IRS may attach qualified plans to collect federal taxes 2. QDRO

Question 36

Distributions due to QDRO

Answer 36

- if participant has no immediate right to cash payments from plan then QDRO cant require payment to divorcee - QDRO can require assets be segregated for benefit of spouse with cash at earliest time allowed

Question 37

Special penalty waiver rule for public service employees

Answer 37

- 10% early withdrawal waived if distribution from qualified plan (not IRA) is made to certain employees after separation of service at age 55 or older - distributions from gov plans for public safety employees is available at 50 penalty free - law enforcement, customs and border patrol, firefighters

Question 38

Tax management techniques - distributions

Answer 38

- ordinary tax (except NUA) - under certain age : 10% penalty techniques 1. substantial equal payments (avoid 10%) 2. spread distributions out (lower bracket years) 3. use after tax investments for retirement

Question 39

Net unrealized appreciation (NUA)

Answer 39

- difference between employer cost basis and market value at lump sum distribution to employee - no subject to taxation until employee sells stock - taxed long term regardless of holding period - if stock appreciates after distribution, gain taxed at capital gain if held long term