Close Close
Sign In
Newsletters
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
Podcast Center Video Center Webcasts Resource Center Events
About ThinkAdvisor Contact Us Advertise With Us Asset & Logo Licensing Sitemap Terms of Service Privacy Policy Copyright © 2024 ALM Global, LLC. All Rights Reserved.
ThinkAdvisor
Ed Slott

Regulation and Compliance > Legislation

Ed Slott: Secure 2.0 Left Lots of Unanswered Questions

By Melanie Waddell

X
Your article was successfully shared with the contacts you provided.

Until there’s guidance on the “unsettled” questions left unanswered by Secure 2.0, advisors “will need to exercise caution with any interpretations,” Ed Slott of Ed Slott & Co. warns in his March IRA Advisor newsletter.

While it’s not unusual for new retirement legislation to have drafting errors and unanswered questions, Slott relays, Secure 2.0 is unique due to “the sheer number of new provisions that throw off so many unsettled issues.”

While some of the provisions are not effective until 2024 or later, Slott says, “the IRS has a tall task ahead.”

Drafting Errors

The first nettlesome issue, according to Slott, is drafting errors.

“There are at least three drafting errors that will have to be fixed, either by Congress in ‘technical corrections’ legislation or by the IRS,” Slott relays.

Secure 2.0 raises the age that IRA owners must start taking required minimum distributions to 73 from 72 for anyone born on or after Jan. 1, 1951, and before Jan.1, 1960, Slott states. It further delays the RMD age to 75 for those born on or after Jan. 1, 1959.

“The effect of these changes is that someone born during 1959 will have two ‘first’ RMD ages: 73 and 75,” Slott writes in his newsletter. “This will need to be corrected, likely to provide a 73 RMD age for those born in 1959. The good news is that there is plenty of time for this to be fixed.”

A “more pressing” drafting glitch, however, concerns the rule that requires higher-income 401(k) participants to make catch-up contributions on a Roth basis, starting in 2024.

“By adding that change, Congress inadvertently deleted a provision of the tax code,” Slott relays.

That deletion effectively bars any employee (higher-income or not) from making any catch-up contributions (pre-tax or Roth) starting in 2024.

The third drafting error occurred when Congress added the provision allowing SEP and SIMPLE IRA contributions to be made on a Roth basis, Slott explains.

“The drafters mistakenly removed tax code language that prevented any SEP and SIMPLE contributions from counting against the Roth IRA annual contribution limit,” Slott said.

529-to-Roth IRA Rollovers

One change that has “drawn significant attention,” Slott states, “permits a 529 account owner, starting in 2024, to do a tax-free rollover of up to $35,000 of unused 529 funds to a Roth IRA.”

The new rollover has several restrictions, “one of which is that the 529 plan must have been open for more than 15 years,” Slott explains. “However, Secure 2.0 is not clear as to whether a fresh 15-year waiting period is required when someone changes 529 plan beneficiaries.”

Or, “can the new beneficiary use the existing time that the 529 account has been open, or does the clock reset?” Slott wonders. “This is unknown.”

Roth Catch-Up Contributions

Beginning next year, “certain high-paid 401(k) participants will be required to have age-50-or-over catchup contributions made to Roth accounts,” Slott writes.

However, “what if the plan does not already offer Roth accounts?” Slott states. “Secure 2.0 does not answer that question.”

One possibility, Slott relays, “is the plan must begin offering Roth accounts to accommodate the mandatory treatment of catchups. Or, it may be that the plan can continue not to offer Roth accounts, but in that case, it could not offer catch-ups for anyone. Or, maybe the ‘required Roth catchup’ could simply be directed to the pre-tax portion of the plan when there is no Roth plan option.”

Another issue still unresolved “concerns which employees are required to have catch-up contributions deposited into Roth accounts,” Slott writes.

Secure 2.0 says that “this only applies to those whose ‘wages’ exceed $145,000 (as adjusted) in the prior year. But many self-employed persons, including sole proprietors, do not have ‘wages’; instead, they have business income,” Slott explains. “Read literally, the Roth requirement would not apply to high-income self-employed individuals who don’t earn wages.”

Pictured: Ed Slott. (Photo: Natalie Brasington)

Melanie Waddell

@Think_MelanieW

NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.