6 ways the SECURE Act 2.0 affects retirees

When the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in 2019, it brought improvements to tax-advantaged retirement accounts and made it easier for Americans to save. The SECURE Act 2.0, signed into law in 2022, extended on many of those improvements and introduced some additional ones. Many of those provisions are specifically beneficial for retirees because the changes affect distribution rules.

Understanding these updates can help you make informed decisions when it comes to your retirement plan.

Before the original SECURE Act, retirees had to begin taking required minimum distributions (RMDs) from specific retirement accounts, such as a 401(k), once they turned 70½. The SECURE Act of 2019 increased that to age 72 for individuals born in 1950 or earlier.

The SECURE Act 2.0 changed that age again, ultimately raising it to age 75 in an incremental phase-in approach over the next 10 years:

• For people born between 1951-1959, the RMD age is 73.
• For people born in 1960 or later, the RMD age is 75.

Raising the age for people to begin taking RMDs allows for more time for the funds to experience tax-deferred growth if you don’t need the assets for living expenses.

Unlike Roth individual retirement accounts (IRAs), designated Roth accounts for workplace plans (such as Roth 401(k)s) historically have been subject to RMD rules. Now, there is no RMD requirement for these Roth accounts, which means the funds can be left in the accounts as long as you'd like.

Eliminating this requirement means you have more choices when it comes to managing your retirement savings in a way that best helps you to accomplish your financial goals if you don't need the funds for retirement income.

• Read more: "6 ways to use your RMDs in retirement"

With the SECURE Act 2.0, a surviving spouse has the same distribution options for inherited retirement accounts that their deceased spouse would have had, even if the survivor is younger. This means they can delay RMDs longer than they would have been able to, based on their own age.

Once RMDs start based on the deceased spouse's age, the surviving spouse can use the Uniform Lifetime Table rather than the Single Life Expectancy Table, which can result in smaller RMDs.

Failing to take the appropriate RMD would previously have meant facing a 50% penalty on the amount that should have been withdrawn.

One of the more popular SECURE Act 2.0 RMD changes cut that penalty to 25%. If the account owner identifies the mistake and corrects it by taking the missed distribution within the correction window, the penalty will be reduced further to 10%. The correction window closes two years after the retiree becomes liable for the tax unless the IRS assesses the penalty or mails the taxpayer a letter of deficiency. Be sure to work with a tax advisor if this situation applies to you.

Calculating and taking the correct RMDs on time can be challenging, and it's important to correct any RMD mistakes. This SECURE Act 2.0 provision provided an incentive to do so.

Qualified charitable distributions (QCDs) allow you to avoid taxation on your RMDs by directing them to a qualified charity. The annual QCD limit as of 2024 is $105,000, and that amount will be indexed for inflation in subsequent years.

The SECURE Act 2.0 also provides for a one-time annual QCD of up to $53,000 to establish certain split-interest entities. These include:

• Charitable gift annuities
• Charitable remainder unitrusts (CRUTs)
• Charitable remainder annuity trusts (CRATs)

There are special considerations concerning split-interest trusts established using this provision, so it's a good idea to talk with a financial advisor to fully understand what this might mean for you.

A QLAC is a deferred annuity designed to provide income in your later years. It is funded from pretax retirement accounts such as traditional IRAs or 401(k) plans. The SECURE Act 2.0 increased the dollar limit to $200,000 and indexes it for inflation going forward. This arrangement allows you to delay RMD distributions on a portion of your assets because those funds will be removed from your annual RMD calculation. 

A QLAC is subject to RMDs no later than age 85, so by placing some of your IRA assets into one you can extend the life of your income and begin receiving annuity payments later in life. And once you start receiving income payments, this guaranteed income continues for as long as you live. If you're concerned about longevity risk, a QLAC can help to ensure that you don't run out of money during your lifetime.

QLACs also now include a provision that allows a person to cancel the contract within 90 days.

Keeping up with the details of a constantly changing regulatory environment can be stressful. Thrivent financial advisors stay up to date with the latest rules, including the changes introduced by the SECURE Act 2.0. Contact a local financial advisor to get help navigating the provisions of this law with your retirement strategy.