The original Secure Act was passed in late 2019 and applied to most farmers starting in 2020. However, the pandemic delayed some of the implementation until 2021, and we are still waiting for final regulations from the IRS.
At the end of 2022, Congress elected to implement Secure 2.0, which made some changes to Secure 1.0 but also made many other changes that will affect farmers either now or in the future. Most of them are beneficial. Here is a review of the major changes to know.
Older required beginning date for IRA and retirement plan distributions
The original Secure Act has changed the required beginning date (RBD) from April 1 of the year after the participant reaches age 70½ to age 72. This change was short-lived. Secure 2.0 changed this date effective Jan. 1 to age 73 and beginning in 2033, the age jumps to 75. For many farmers, this is good news because they will have a few extra years of tax-
deferred compounding; however, many farmers might face large tax increases later due to higher distributions.
Enhanced credits for starting a new retirement plan
Currently, there is a tax credit allowed for up to 50% of the cost of forming a new retirement plan. Secure 2.0 increases this credit to 100% for the first three years of the plan and adds a new credit based on the actual contributions by the farmer to the plan. The new credit is equal to 100% of the contributions for each employee up to $1,000 per employee.
If the farmer has five employees and they contributed $1,000 for each employee, the credit would totally offset this cost. The credit percentage is phased-down by 25% each year (second year: 75%; third year: 50%, etc).
Rollover of certain 529 Funds to ROTH IRAs
Many farmers elect to set up Section 529 plans for their children or grandchildren’s education. However, many times there are still funds left in the 529 plan after the child graduates from college. Secure 2.0 now allows up to $35,000 to be transferred into the participants ROTH account. There are restrictions on the amount, how long the account must be open, etc., but the bottom line is this might be an additional way of getting funds into your child’s retirement account early in their career. TP
