SECURE 2.0 Act – Section 302. Reduction in Excise Tax on Certain Accumulations in Qualified Retirement Plans
The SECURE 2.0 Act (SECURE 2.0) has changed the rules surrounding required minimum distributions (RMDs). Required minimum distributions represent minimum amounts that must be withdrawn out of retirement accounts on an annual basis depending on the individual’s age (reference Section 107 of SECURE 2.0 for new age requirements).
Existing law imposes an excise tax on an individual if the amount distributed during a taxable year is less than the RMD for that year. The excise tax is equal to 50% of the shortfall (that is, 50% of the amount by which the RMD exceeds the actual distribution).
Section 302. reduces the excise tax that an individual would be subject to if they failed to meet their RMD starting in the 2023 tax year. Specifically, the excise tax for failure to take RMDs reduced to 25% of the amount not taken.
If a failure to take an RMD has occurred and been corrected in a timely manner (within 2 years) the excise tax has been reduced further to 10%. If an RMD has been missed the account owner should file Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts with their federal tax return for the year they failed to take the RMD.
If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].
This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.
About SECURE 2.0
SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.
This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.
The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.
About Schneider Downs Retirement Solutions
Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.
