SECURE Act 2.0: When Will It Arrive?

Take-Away: As has been periodically reported throughout 2022, there has been some hope that we would see Congress pass what has been called SECURE Act 2.0 before the end of 2022 liberalizing some of the rules that pertain to retirement plan distributions. Currently we hold our breath to see if this legislation gets passed before the end of 2022.

Background: Actually, there are three  different bills in Congress [House and Senate]  that each address some fairly significant changes to retirement plans and distributions from retirement plans. One is the SECURE Act 2.0 passed earlier in the year by the House.  The Senate Finance Committee has another called  Enhancing American Retirement Now, or EARN Act.  These two bills, and yet another buried somewhere in the House before a Labor Committee,  would all have to be reconciled before the final bill came up for a vote in both the House and Senate. Currently, passage of SECURE 2.0 is tied to the must-pass budget bill, so that it might ultimately come in the form of an end-of-2022 omnibus spending bill. If that  bill does not get passed this year, then we will have a new Congress come January 3, 2023, and will have start the process all over again which will delay enactment. Some of the changes that are in the current SECURE 2.0 passed by the House last spring include:

• Extend the required beginning date (RBD) in which to start taking required minimum distributions (RMDs) from age 72 to 75, implemented over the next 10 years;
• Reduce the 50% excise tax for the failure to take an RMD to a much smaller percent;
• Create a $10,000 exception from the 10% early distribution excise tax for distributions prior to age 59 ½, if the account owner was the victim of domestic violence;
• Allow student debt payments to be matched as employer retirement contributions;
• Provide tax incentives to businesses to start retirement plans and create emergency saving accounts;
• Authorize the expanded offering of annuities within 401(k) plans; and

Provide that prohibited transactions within an IRA, e.g. self-dealing, will cause only the amount of the prohibited transaction itself to be disqualified, and thus taxed as a distribution, but not disqualify the entire balance of the IRA in which the prohibited transaction occurred.

Contribution: The SECURE 2.0 has widespread bipartisan support in Congress. Hopefully it will not be held hostage in exchange for the passage of other legislation.