SECURE Act 2.0 – Even More

Take-Away: Earlier today a summary was provided of some of the key provisions that are part of the SECURE Act 2.0 that was passed by the House of Representatives this week. [HR 2954.] A few more changes in have surfaced as I leaf through the legislation, summaries of which follow:

IRA Prohibited Transactions Less Onerous: The current rule is that if an IRA owner engages in a prohibited transaction with his/her IRA, their entire IRA is disqualified, and the IRA’s balance becomes immediately taxable. The change would cause only the amount which triggered the prohibited transaction to become immediately taxable, but not the entire IRA balance.

403(b) Hardship Withdrawals Increased: The list reasons when the employee-annuitant can take a hardship withdrawal from his/her 403(b) annuity is expanded. The reasons for this exception from penalty for early distributions come much closer to those hardship reasons which enable a withdrawal from an IRA penalty-free.

IRA Domestic Violence Victims Not Penalized: Currently, there is a list of exceptions when an individual can take a distribution from their IRA without triggering the 10% penalty for an early distribution prior to attaining age 59 ½. Added to that list is when the owner’s withdrawals are because they were the victim of domestic violence.

Donor Advised Fund Distributions: The much discussed curbs on how long funds can sit in a donor advised fund before being distributed to charities finally have surfaced in legislation. The change would require distributions from a donor advised fund within a prescribed period of time if the donor took an immediate income tax charitable deduction for his/her contribution to the donor advised fund.

IRA Contributions to Charitable Remainder Trusts: The change would authorize a contribution from a traditional IRA to a charitable remainder trust (CRT) without triggering immediate income taxation of the transfer from the IRA to the CRT, yet the donor would be able to claim an immediate income tax charitable deduction.

Conclusion: Recall that these provisions are part of a bill that was just passed by the House. They are not, yet, the law, nor are they assured of being passed by the Senate, especially when you consider that this is an election year.