On Tuesday, Congress sent a letter to the Treasury Department informing Secretary Janet Yellen and Internal Revenue Service Commissioner Daniel Werfel that it would introduce legislation to fix several technical errors in SECURE 2.0.
Signed by four prominent SECURE 2.0 figures: House Ways and Means Committee Chairman Jason Smith (R-MO), Ranking Member Richard Neal (D-MA), Senate Finance Committee Chairman Ron Wyden (D-OR), and Ranking Member Mike Crapo ( R-ID) — the amendments would better reflect the intent of Congress, according to the letter.
“We intend to introduce technical corrections legislation to correct erroneous statutory language that may include items not addressed in this letter,” they wrote, singling out four provisions in particular: sections 102, 107, 601 and 603.
Section 102
SECURE 2.0 Section 102 added a tax credit for starting an employer-based plan. The authors of the letter say: “The provision may be read to subject the additional credit for employer contributions to the dollar limit that would otherwise apply to the newly created credit.”
However, Congress intended that the new employer investment credit would be otherwise available to the employer in addition to the start-up credit.
Section 107
Section 107 dealt with required minimum distributions (RMDs) and increased the age at which RMDs must be taken.
Congress intended to raise the age from:
- 72 to 73 for individuals who turn 72 after December 31, 2022 and age 73 before January 1, 2033;
- To increase the applicable age from 73 years to 75 years for persons who turned 73 after December 31, 2032.
“However, as regards the increase from age 73 to age 75, the provision may be construed to apply as such; [an] For individuals turning 74 (rather than 73) after December 31, 2032, which is contrary to the intent of Congress,” they explained.
Section 601
Section 601 allows SIMPLE IRA and SEP plans to include a Roth IRA. It can be read as a SEP and SIMPLE contribution requirement to determine whether or not an individual has exceeded the Roth IRA contribution limit.
“However, Congress intended to preserve the result under the Act as it existed prior to the enactment of SECURE 2.0 regarding SIMPLE IRA and SEP contributions. Thus, Congress intended that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) count for purposes of the otherwise applicable Roth IRA contribution limit.”
Section 603
SECURE 2.0 required any catch-up contributions made after 2023 to be made as a Roth if the participant earned more than $145,000 in the previous year.
However, the corresponding amendment to Section 603 “could read some to prohibit prepaid investments (whether pre-tax or Roth) beginning in 2024,” something first revealed by the American Pension Association in January.
“Congress did not intend to disallow top-up payments or to change how the top-up rules apply to employees who participate in unrelated employer plans,” the letter said. “Rather, Congress intended to require additional contributions for participants whose wages from a sponsoring employer for the previous year exceeded $145,000 to be made on a Roth basis, and to allow other participants to make additional contributions in advance. – Tax or Roth Basis.”
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