Congress weighs in on SECURE 2.0 guidance/technical corrections

On May 23, 2023, the Chairs and Ranking Members of the Senate Finance and House Ways and Means Committees sent a letter to the Secretary of the Treasury and the Commissioner of Internal Revenue, identifying SECURE 2.0 provisions with respect to which they intended “to introduce technical corrections legislation to correct erroneous statutory language,” and “to ensure that [e.g., with respect to IRS SECURE 2.0 guidance] Congressional intent is carried out.”

The letter provides clarification on four specific issues:

Section 102 (modification of credit for small employer pension plan startup costs): Before the enactment of SECURE 2.0, the Tax Code provided a 3-year small business plan startup credit of 50% of administrative costs, capped (annually) at $5,000. SECURE 2.0 added a credit equal to a percentage of employer contributions, capped (per employee) at $1,000. The letter makes clear that this new SECURE 2.0 credit for employer contributions is not subject to (or considered when applying) the $5,000 cap.

Section 107 (increase in age for required beginning date for mandatory distributions): This SECURE 2.0 provision increases the required minimum distribution (RMD) age from 72 to 73 in 2023 (for individuals turning 72 after 2022) and from 73 to 75 in 2033. There is concern that the latter increase in the RMD age (from 73 to 75) could be read as applying to individuals who turn 74 after 2032 – the letter clarifies that the intent is for the provision to apply only to individuals turning 73 after 2032.

Section 601 (SIMPLE and SEP Roth IRAs): The letter clarifies Congress’s intention “that no contributions to a SIMPLE IRA or SEP plan (including Roth contributions) be taken into account for purposes of the otherwise applicable Roth IRA contribution limit.”

Section 603 (elective deferrals generally limited to regular contribution limit): Under this provision, effective for 2024, catch-up contributions for participants whose prior-year wages exceeded $145,000 must be Roth contributions. As the letter states, “A conforming change [in SECURE 2.0 as passed] … might be read by some to disallow catch-up contributions (whether pre-tax or Roth) beginning in 2024.” The letter states that this was not the intent of Congress. Rather, “Congress’s intent was to require catch-up contributions for participants whose wages from the employer sponsoring the plan exceeded $145,000 for the preceding year to be made on a Roth basis and to permit other participants to make catch-up contributions on either a pre-tax or a Roth basis.”

Finally, the letter states that the technical corrections legislation the signers intend to introduce may include items not addressed in the letter. We provide a summary of needed SECURE 2.0 follow-on guidance here.

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We will continue to follow these issues.