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Retirement Planning > Spending in Retirement > Required Minimum Distributions

Secure 2.0 Act Needs a Fix: Jeff Levine

By John Manganaro

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What You Need to Know

  • Though its individual provisions are more modest, Secure 2.0 contains more meaningful changes than the original, Levine says.
  • Among the most popular changes is another increase in the RMD age.
  • It appears there is a drafting issue in this part of the legislation, but experts say this can easily be corrected.

Retirement experts are busily digesting the 300-plus pages of the Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act of 2022, which has been included in the federal government’s $1.7 trillion omnibus spending bill.

Assuming the omnibus bill passes before the New Year holiday, and most policy experts believe it will, changes to retirement planning will begin as early as Jan. 1. The bill passed the Senate Thursday afternoon and is expected to pass the House this week.

According to Jeff Levine, Kitces.com’s lead financial planning nerd and also Buckingham Wealth Partners’ chief planning officer, there is no single change in Secure 2.0 that rises to the magnitude of “the death of the stretch individual retirement account” that came along with the original Secure Act — but there are more total impactful changes in the sequel.

A Big Drafting Mistake?

Taking to Twitter in his usual style this week (and leveraging lots of gifs and memes), Levine said one key topic for financial advisors to follow is Secure 2.0’s Section 107. This part of the legislation seeks to increase the age at which taxpayers must begin taking required minimum distributions from their traditional IRAs.

As Levine points out, the Secure Act of 2019 increased the required minimum distribution age to 72 from 70 1/2. Section 107 further increases the RMD age to 73 starting on Jan. 1, 2023 — and the bill increases the age further to 75 starting on Jan. 1, 2033.

While he supports the additional flexibility this increase will bring for clients of financial planners, Levine says this part of the bill’s text is surprisingly and frustratingly complicated. In fact, he believes there is a major drafting issue lurking in this section of the bill that makes the ultimate future impact of Section 107 as-yet unclear for certain investors.

In particular, under the draft text of the bill that is being publicly circulated, it appears that individuals born in 1959 would actually have two different RMD ages: 73 and 75.

“Either I’m losing my marbles (the more likely scenario), or there’s a MAJOR DRAFTING ISSUE,” Levine writes.

The issue, as Levine sees it, is that a person born in 1959 will both turn 73 before 2033 (i.e., in 2032) and turn 74 after 2032 (i.e., in 2033).

“I think it’s flat out a mistake,” Levine writes, to which point one fellow Twitter user and CFP suggests Congress wants to see taxpayers “take their RMD test” every year until they find an applicable year. So, because a person born in 1959 turns 73 in 2032, he or she must take their first RMD in 2032.

Levine says he is not so sure about that logic, and a number of others agree with that take.

Joining the fray, Jamie Hopkins, director of retirement research at Carson Group, says this appears to be a drafting mistake and that the language cited by Levine “makes no sense.”

“Honestly, the catch up contribution provision is a bit wonky right now, too,” Hopkins writes. “But I only see this one as a mistake in drafting. With [the RMD age issue] being a decade out, it’s really not important. It could be fixed 1,000 times before it applies.”

Any drafting mistake not caught before the bill’s passage would need to be fixed later by a technical amendments bill.

Still a Favored Provision

Despite the confusion, Section 107 remains highly favored among financial planning experts, because of its potential to allow clients with increased life expectancies to enjoy multiple additional years of tax-free growth in their private savings accounts.

According to an oft-cited 2021 report from the National Bureau of Economic Research, considered in isolation, increasing the RMD age will not likely have a major discernible impact on the average retirement account balances of older Americans. Additionally, it appears to the NBER researchers that Social Security claiming behavior will not be significantly affected.

However, some groups of retirees will see meaningful improvements in their ability to achieve their financial goals thanks to a higher RMD age. For example, there would be a meaningful benefit for those retirees who have a strong bequest motive, according to the NBER researchers.

Melanie Waddell contributed reporting.

John Manganaro

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