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.
