Secure 2.0 Legislation – Big Changes for Retirement Plans (2 of 2)
Since the Consolidated Appropriations Act of 2023 was signed by President Biden on December 29, 2022, we have been reviewing the details.
At over 350 pages, there is a lot to sort through.
The omnibus budget package consolidated retirement rules changes from several recent House and Senate bills into what has been referred to a SECURE Act 2.0.
In a prior article, we covered changes related to Roth plans, Catch-Up contributions, and Hardship distributions.
Here are some of the other significant new rules that impact self-directed IRA and Solo 401(k) holders.
Required Minimum Distributions
A set of new rules increase the age at which Required Minimum Distributions (RMDs) must be taken, bring consistency to IRA and 401(k) plans by eliminating RMDs from 401(k) designated Roth accounts, and reduce the penalties for failure to take RMDs. A new spousal account option provides the benefit of lower RMDs to those who inherit an account from a younger spouse.
RMD Age Increased (Again)
The SECURE Act of 2019 marked the first increase in the starting date for Required Minimum Distributions since the concept was introduced with Tax Reform Act of 1986. The age at which RMDs must begin was changed from 70 ½ to 72.
Under the new rules in SECURE 2.0, the required beginning date for mandatory distributions from retirement plans has been increased to a new “applicable age.”
The applicable age will be 73 for individuals who reach age 72 after December 31, 2022 and before January 1, 2033, and 75 for individuals who reach age 74 after December 31, 2032.
These changes will apply to distributions required to be made after December 31, 2022.
No RMD Required for Roth Accounts of Qualified Plans
Roth IRA plans have always been exempted from Required Minimum Distributions.
Prior to SECURE 2.0, however, the Roth Designated Account in an employer plan like a 401(k) was still subject to the same RMD rules as a tax-deferred IRA or 401(k).
This forced many 401(k) participants nearing the RMD applicable age to rollover assets from a 401(k) Roth account – including a Roth Solo 401(k) – to a Roth IRA if they did not want to be forced to take distributions.
SECURE 2.0 eliminates RMDs for Roth Designated Accounts in 401(k) and similar employer plans.
This change takes effect starting in 2024.
Lower Penalty for RMD Not Taken
The failure to take a RMD used to come with a 50% excise tax on the amount not taken. Starting in 2023, this penalty has been reduced to 25%.
If a missed Required Minimum Distribution is taken within a “Correction Window” the penalty is reduced to 10%.
The correction window is the period between January 1st of the year following the missed RMD and the earliest of the following dates:
- When the IRS mails a Notice of Deficiency to the taxpayer
- The tax is assessed by the IRS
- The last day of the second tax year after the tax is imposed
New Spousal Beneficiary Option to be Treated as the Original Plan Holder
Spouses have always received special treatment when inheriting an IRA, 401(k), or other retirement plan. SECURE 2.0 adds a new option, which is to be treated as the deceased spouse.
For spouses who inherit an account from a younger partner, this can have several advantages:
- RMDs are delayed until the deceased spouse would have reached the applicable age.
- RMDs are then based on the Uniform Lifetime Table using the deceased spouse’s age, rather than on the Single Lifetime Table using the inheriting spouse’s age.
- If the surviving spouse dies before RMDs begin, their beneficiaries will be treated as if they were the original beneficiaries on the account, which may change their distribution options.
SIMPLE IRA Plan Changes
Increased Employer Contributions for SIMPLE IRA Plans
Starting in the 2024 tax year, contribution limits for SIMPLE IRA plans will increase.
SIMPLE plans require employer contributions of either 2% of compensation or 3% of employee elective deferral contributions. Section 116 of the Act permits employers to make additional contributions up to the lesser of 10% of compensation or $5,000.
Section 117 increases the annual deferral limits to 110% of the 2024 limit, with indexing to inflation in future years, for employers with no more than 25 employees.
Employers with 26-100 employees can also provide these higher limits, but only if they provide a 4% match or a 3% employer contribution.
Solo 401(k) Plan Changes
First Year Solo 401(k) Employee Deferrals
Prior to the 2019 SECURE Act, you had to establish a Solo 401(k) by December 31st of the plan year to be able to make contributions at all.
SECURE 1.0 allowed for a plan to be established up until the tax filing date of the business, including extensions and still accept employer contributions only for the prior tax year.
SECURE 2.0 permits self-employed plan participants who are sole proprietors or sole owners of a pass-through LLC to make employee deferrals to a plan that is established between the end of the tax year and the tax filing date.
This new rule starts with the 2023 plan year.
401(k) Eligibility for Part-Time Employees
The original SECURE Act of 2019 extended 401(k) eligibility to “long-term part-time” employees working more than 500 hours per year for three consecutive years beginning in 2021.
SECURE 2.0 reduces the years of service to two starting in 2023. Such part-time employees will be eligible for plan participation starting in 2025.
Amendment Deadline in 2025
The deadline to adopt 401(k) plan amendments to reflect the new laws the end of 2025. We will not be surprised if this deadline gets extended for at least some of the more complex new rules.
Many of the new rules can be adopted and deployed before plan amendment has taken place. Some new rules will require updated plan language or administrative forms before they can be implemented.
We will cover this topic in more detail as more information becomes available.
Safeguard Advisors Solo 401(k) clients with an active document maintenance subscription will receive plan amendments when they are released. In most cases, it can be a year or two before congressional language is translated into 401(k) amendments.
Some Headline Changes that do not Impact Individual Self-Directed Plans
The features we have covered above and in our first article apply to self-directed IRA and Solo 401(k) plan holders. You may want to have a conversation with your tax counsel and consider new strategies or adjustment to existing plans that will either keep you in compliance or allow you to take advantage of new benefits.
Following are a few of the bigger changes in the law that will get a lot of media coverage, and may or may not impact you as an individual if you participate in an employer 401(k) at work, but really do not intersect with the individual IRA and Solo 401(k) plans we offer at Safeguard Advisors.
Auto Enrollment in 401(k) plans
Employers with more than 10 employees will have to automatically enroll employees in a new 401(k). A Solo 401(k) will not be impacted.
Student Loan Repayment Matching
Larger employers can view eligible student loan repayments as if they were employee deferrals into the company 401(k) plan, and provide an employer match on those dollars. This will be a nice tool for attracting and retaining younger talent.
A Solo 401(k) does not have a matching provision, so this feature will not allow you to consider your own student loan payments as contributions to your own Solo 401(k) plan and then apply a company match.
Emergency Savings Accounts
Section 127 of the act creates a pension linked Emergency Savings “sidecar” account that can be held within a 401(k) or similar employer plan starting in 2024. This small account of up to $2,500 allows for tax-free withdrawals in an emergency. This feature only applies to larger employer plans.
Small Employer Startup Credits
This credit towards the cost of plan setup and even some initial contributions only applies to 401(k) plans that provide coverage to non-owner employees – which of course a Solo 401(k) cannot.
Wrapping Up – For Now
We hope this initial overview of the changes implemented with with SECURE 2.0 has been helpful.
It is our intention to work though these new rules over the next several months and provide additional details, point out some new strategy options, help with compliance guidance, and cover some of the smaller administrative topics that did not make the cut in this first look.
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Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
