May 2023 Compliance News Article

Congress Clarifies SECURE 2.0 Intentions

In a letter to the Secretary of the Treasury and the Commissioner of the Internal Revenue Service (IRS), Congress provided clarifying language around their intent in certain provisions of the SECURE 2.0 Act of 2022 (“SECURE 2.0”). The letter lays the groundwork for the US Department of the Treasury and the IRS to use Congress’s intent when enforcing laws regarding the issues Congress identified.

Clarification

Since SECURE 2.0 was signed into law, questions have remained around a few provisions. Congress has provided their intent on the following sections:

Section 102 increased the credit for small employer pension plan startup costs by giving a partial credit to eligible employers for a portion of the employer contributions to the plan. The provision could be interpreted to mean that the new startup credit was subject to existing limits. However, Congress clarified that the intent was for the new credit to be separate from the regular credit and therefore, not subject to the limits of the existing credit.
Section 107 increased the required beginning date for required minimum distributions (RMDs) this year from age 72 to 73 for certain individuals. There has been some confusion, though, about who would be eligible for the subsequent increase to age 75 effective January 1, 2033. Congress clarified that individuals who turn 73 after December 31, 2032 will be eligible for RMD at age 75.
Section 601 allows SIMPLE IRA plans and SEP plans to include a Roth IRA. That section could be interpreted to mean that contributions to a SIMPLE IRA or SEP plan are included in determining the contribution limit to a Roth IRA. However, Congress stated that their intention is that contributions to a SIMPLE IRA or SEP plan are not counted toward the Roth IRA contribution limit.
Section 603 requires that catch-up contributions to retirement plans be made on a Roth basis for participants earning more than $145,000 from the employer in tax years beginning after 2023. Another change meant to align with Section 603 could be interpreted to mean that catch-up contributions will be disallowed starting in 2024. However, the intent was not to remove the ability to make catch-up contributions for participants who meet the age requirement.

Next Steps

Congress has stated that they intend to introduce technical corrections legislation that may also clarify other confusing or misleading language. As always, we’ll keep you informed of any changes that could impact retirement plans.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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