SECURE 2.0 helping solve ‘serious demographic problem’

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By Susan Rupe

As the U.S. population ages, the country faces “a serious demographic problem,” said Tyler Brown, director of government affairs for North American Co. He said SECURE 2.0 is a step toward addressing that problem as the act makes annuities more widely available to workers enrolled in employer-based retirement plans “and that’s in everyone’s interest.”

Brown made his remarks during an update on SECURE 2.0 presented by the National Association for Fixed Annuities.

SECURE 2.0, which passed Congress at the end of 2022, “provides a sizeable boost to retirement savings,” Brown said. “It also provides some modest improvements to using annuities in retirement plans.”

The bill contains about 90 provisions aimed at improving Americans’ ability to save for retirement. “When you look at all these provisions together, they will help Americans really grow that pie of retirement savings,” he said.

Amy Piepmeier, Athene vice president and senior counsel, listed a number of the changes that SECURE 2.0 brings to beginning required minimum distributions from individual retirement accounts. For those born on or before June 30, 1949, RMDs must be taken at age 70 ½ . That age rises to 72 for those born between July 1, 1949, and Dec. 31, 1950; to age 73 for those born between 1951 and 1959, to age 75 for those born in or after 1960.

She described several other provisions impacting IRAs.

RMD excise tax reduction. For tax years 2023 and after, the excise tax reduces to 25% of the amount that should have been distributed and reduces further to 10% if a corrective distribution meeting certain criteria is taken.
Opportunity for surviving spouse beneficiary to lower their RMDs effective 2024. Spouses who are the beneficiary of an employee plan have the ability to elect to stretch those RMDs based on the uniform life table instead of the single life table. Previously, for a surviving spouse to do that, they would have had to roll those plan assets out of the plan and into an IRA in order to get that uniform life table treatment. Now they can get that within the plan.

However, one of the benefits that still available to them if they roll over is the ability to use their required beginning date as the time frame to trigger those RMDs. If they stay within the plan, they are able to use the uniform life table but they will have to start taking those RMDs right away.

Eliminating the incentive against partial annuitization. SECURE 2.0 will lessen that burden on partial annuitization. Which means for those who have some retirement assets that are annuitized, if those annuity payments exceed their RMD requirements, they can then apply those to other RMD requirements as opposed to having to take an RMD on top of that annuitization. Piepmeier said this reflects on the fact that people who are who are annuitizing are taking advantage of their money and meeting their RMD obligations as well.
Removing minimum income threshold test barriers. One of the potential advantages of this, Piepmeier said, is that some people may have the ability to increase their payments over time as a part of that annuitization. For those who don’t increase by more than 5%, the law will also allow for who annuitized their retirement plan and then realized they need those assets now to be able to take a lump sum without penalty.

SECURE 2.0 also impacts 529 plans, Piepmeier said. She noted that not all 529 plan beneficiaries end up needing or using the money for education. SECURE 2.0 permits up to $35,000 in aggregate rollovers from a 529 account to a Roth IRA maintained for the 529 account’s designated beneficiary. The rollover is subject to annual Roth IRA contribution limits, and the 528 plan must have been held open for more than 15 years to be eligible for the rollover.

Other notable provisions of SECURE 2.0, Brown said, include:

Allowing SIMPLE and SEP IRAs to become Roth IRAs.
Establishing a federal saver’s credit match, effective 2027.

SECURE 2.0 has a provision clarifying substantially equal periodic payment exception rules for rollover, transfer or exchanges. Piepmeier explained.

“For example, if you wanted to do a partial rollover in your annuity that had a SEPP that was ongoing - provided that you added a SEPP in the new IRA annuity and the amount you are receiving is the same as you were getting from the original IRA, then you are now going to qualify. That was kind of a gray area that was out there before – now makes it clear you can have those partial exchanges, transfers and rollovers as long as the aggregate of the payments you are getting out of those SEPPS matches originally.”

SECURE 2.0 also includes:

Indexing the IRA catch-up contribution limit to inflation beginning in 2024.
Expanding the IRA charitable deduction beginning in 2023.
Indexing the IRA charitable deduction beginning in 2024.
Making exceptions to the IRA early withdrawal penalty for those who are terminally ill, for domestic abuse victims, for those experiencing an emergency personal expense, and for qualified disaster recovery.

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on Twitter @INNsusan.