Technical Corrections Expected for SECURE 2.0 Act – Wealth Management

In a May 23 letter to Treasury Secretary Janet Yellen and Internal Revenue Service Commissioner Daniel Werfel, several members of the Senate Finance and House Ways and Means committees expressed their intention to make some technical corrections to provisions in the SECURE 2.0 Act.

Four Provisions

The letter identified four provisions that require technical corrections:

1. Age for required minimum distributions (RMDs) to begin. The letter explains that Congress intended to increase the applicable age for RMDs from 72 to 73 for individuals who turn 72 after Dec. 31, 2022 and who turn 73 before Jan. 1, 2033, and to increase the applicable age from 73 to 75 for individuals who turn 73 after Dec. 31, 2032. But the provision regarding the increase from age 73 to age 75 could be read to apply to individuals who turn 74 (rather than 73) after Dec. 31, 2032, which is inconsistent with Congressional intent.
2. New credit for employer contribution to pension plans. The letter states that SECURE 2.0 Act increases the credit for small employer pension plan startup costs (startup credit) in part by allowing eligible employers a credit for a portion of employer contributions made to the plan. The provision could be read to subject the additional credit for employer contributions to the dollar limit that otherwise applies to the startup credit. However, Congress intended the new credit for employer contributions to be in addition to the startup credit otherwise available to the employer.
3. Inclusion of Roth individual retirement accounts in savings incentive match plan for employees (SIMPLE) and simplified employee pension (SEP) plans. The letter explains that Internal Revenue Code Section 601 of SECURE 2.0 permits SIMPLE IRA plans and SEP plans to include a Roth IRA. Section 601 could be read to require contributions to a SIMPLE IRA or SEP plan to be included in determining whether an individual has exceeded the contribution limit that applies to contributions to a Roth IRA. However, Congress intended to retain the result under the law as it existed before SECURE 2.0 Act was enacted regarding SIMPLE IRA and SEP contributions (taking into account that Section 601 permits SIMPLE IRA and SEP plans to include a Roth IRA). Thus, Congress intended that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) be taken into account for purposes of the otherwise applicable Roth IRA contribution limit.
4. Update to catch-up contribution allowances. The letter states that IRC Section 603 of SECURE 2.0 Act requires catch-up contributions under a retirement plan to be made on a Roth basis, for taxable years beginning after 2023, if the participant’s wages from the employer sponsoring the plan exceeded $145,000 for the preceding calendar year. A conforming change to Section 603 might be read by some to disallow catch-up contributions (whether pre-tax or Roth) beginning in 2024. Congress didn’t intend to disallow catch-up contributions nor to modify how the catch-up contribution rules apply to employees who participate in plans of unrelated employers. Rather, Congress intended to require catch-up contributions for participants whose wages from the employer sponsoring the plan exceeded $145,000 for the preceding year to be made on a Roth basis and to permit other participants to make catch-up contributions on either a pre-tax or a Roth basis.