By Kenneth H. Bridges, CPA, PFS June 2023
On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act of 2023, which included retirement legislation known as SECURE 2.0 Act. While this legislation is mostly of interest to retirement plan administrators, there are a few provisions of more general interest which are summarized briefly here.
Increase in RMD age – Federal tax law has long provided “required minimum distribution” (RMD) rules, whereby you must begin taking distributions from your qualified retirement plans by a certain age (with the minimum annual amount based on a prescribed life expectancy table) or else be hit with a draconian penalty for failure to do so. For many years, the age at which the RMD rules kicked in was 70 ½. Legislation enacted in 2019 increased that age to 72. The new legislation further increases the RMD age to 73 (with a further scheduled increase to age 75 in 2033).
Reduction in the RMD penalty – The penalty for failure to take RMDs has historically been a draconian 50% of the shortfall amount. For 2023 and forward, the penalty has been reduced to 25%; and further reduced to only 10% if the shortfall is corrected within a timely manner.
Rollover of 529 to Roth – Beginning in 2024, unused amounts in a 529 plan (tax-favored college savings plan) can be rolled over tax-free to a Roth IRA; with significant restrictions. The 529 plan account must have been open at least 15 years; the rollover must be from the beneficiary of the 529 plan (not the account owner) to a Roth IRA held in the beneficiary’s name; any contributions and earnings on those contributions made in the last five years are not eligible for the rollover; the total lifetime rollover amount must not be more than $35,000 for each beneficiary; and the rollover amount is subject to the annual Roth contribution limit (e.g. $6,500 for 2023).
Crackdown on syndicated conservation easements – There have been proposals in Congress for years to legislatively disallow conservation easement deductions allocated by partnerships in situations where the deduction claimed exceeds 2.5 times the amount paid. Past versions of the legislation (which would have applied retroactively back to 2016) came close to passing, but failed. The version passed in late 2022 applies prospectively only (after December 29, 2022). Accordingly, for transactions entered into prior to late 2022, the fight over valuation and technical foot faults will likely continue to play out in the courts.
Kenneth H. Bridges, CPA, PFS is a partner with Bridges & Dunn-Rankin, LLP, an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.