SECURE 2.0 Act

What are Required Minimum Distributions?

The Federal Government allows the deferral of taxes on both your contributions and your earnings as an incentive to help you save for retirement, but this is not intended to be a permanent tax shelter. To that end, the Federal Government established Required Minimum Distributions (RMDs). Once you meet the minimum beginning age, you must take an annual RMD distribution in an amount that is based on your balance from December 31 of the prior calendar year and a formula that the IRS has established.

What changed?

Effective January 1, 2023, the age requirement to begin taking RMDs increased from age from 72 to 73, affecting anyone attaining age 72 after December 31, 2022.

If you turned 72 in 2022, and you’re not employed by the City of Los Angeles, you must have taken your first 2022 RMD by April 1, 2023. Keep in mind you will still need to take another RMD for 2023 by December 31, 2023, and by every December 31st thereafter. If you have not proactively taken any distributions, the DCP will automatically disburse this amount to you.

If you turn 73 any time after December 31, 2022, and are not employed by the City of Los Angeles, you must take your first RMD by April 1st of the following year after you turn 73. You will also need to take another RMD by December 31st of that year and by every December 31st thereafter. If you have not proactively taken any distributions, the DCP will automatically disburse this amount to you.

Are after-tax (Roth) contributions subject to RMDs?

Currently, yes, both your pre-tax and after-tax (Roth) balances are included in the calculation for your RMD amount. However, another provision of SECURE 2.0 indicates after-tax (Roth) account balances will no longer be subject to RMDs during the participant's lifetime. Meaning, RMDs will only be calculated on your pre-tax balance. This will begin to be effective for tax years after December 31, 2023.

How does the DCP help?

Each January, using the IRS formula, the DCP calculates the RMD amount for each applicable participant. RMD reminders are sent around April and October. If you don’t take your RMD during the year, the DCP will automatically send you a check for your RMD amount (less any other applicable distributions you’ve already taken) in December (or in March if it is your first RMD) to ensure you don’t face the IRS penalty. We encourage you to consult with your tax advisor about your specific situation.

Please note that if you have a self-directed brokerage account (SDBA), a minimum of $2,500 is required to be held in the core investment options, or what we call your core account. The DCP is not able to initiate the automatic payments for your RMD unless you have enough of a balance in the core account to cover the $2,500 required minimum balance and the amount of your RMD.

What happens if I miss my RMD?

A SECURE 2.0 provision reduces the missed RMD Penalty from 50% to 25% of the amount of the missed payment. If failure to take the RMD is corrected in a timely manner, the penalty may be reduced to 10% of the distribution. Please consult with your tax advisor about your specific situation.

When does this go into effect?

These mandatory provisions under SECURE 2.0 were adopted by the Board of Deferred Compensation Administration at its June 20, 2023 meeting and are effective for RMDs made after December 31, 2022 unless otherwise indicated.

What is changing?

Previously, contribution changes needed to b made prior to the first day of the month. For example, a contribution change for a paycheck in June must have been made before May 31.This is known as the "first-of-the-month" rule and was set in place by the IRS.

A SECURE 2.0 provision allows participants’ contribution elections to be effective in the same month the compensation is available to the participant, thus eliminating the "first-of-the-month" rule. For example, a participant may request a contribution change for a paycheck in June in the same month as long as it is made within an appropriate processing time frame prior to the paycheck.

For information on how to make contribution changes, visit our Change Contributions page

What is the benefit of this change?

Participants now have greater flexibility in making their contribution changes. The change also aligns the DCP with best practices in the retirement industry.

When does this go into effect?

This optional provision under SECURE 2.0 was adopted by the Board of Deferred Compensation Administration at its June 20, 2023 meeting. The change was made effective with any changes for the March 20, 2024 paycheck. Your contribution change will now take effect as soon as administratively feasible, but generally may take one to two pay periods (depending on the payroll processing timeline) to see the change reflected on your paycheck.

What is changing?

Participants above the age of 50 have a higher annual contribution limit than the normal limit, as determined by the IRS. The higher limit is automatically applied in the year that you turn age 50 and may be deferred as either pre-tax or after-tax (Roth) contributions. In 2023, the normal annual contribution limit is $22,500 and the age 50 limit is an additional $7,500.

Under SECURE 2.0, participants whose wages exceed $145,000 in the prior calendar year (adjusted annually for cost-of-living in increments of $5,000) must make their additional age 50 contributions on an after-tax (Roth) basis only. The after-tax (Roth) requirement only applies to contributions above the normal IRS contribution limit.

The retirement industry is seeking further guidance from Congress and the U.S. Treasury Department regarding the implementation of this new provision. The provision may potentially be delayed from its initial effective date of 2024.

How do I know if this applies to me?

Participants who earned more than $145,000 in the prior calendar year will be notified regarding the required limits. Additionally, you can review your W-2 to determine your wages from the prior calendar year. Participants are encouraged to review their contributions throughout the year to ensure they are not contributing more pre-tax dollars than they are allowed.

What happens if my wages drop below $145,000?

The threshold will be determined by the IRS annually with increases from cost-of-living in increments of $5,000. If you do not meet the criteria, you will be eligible for pre-tax or after-tax (Roth) contributions.

I'm enrolled in Catch-Up. How does this impact me?

This provision does not apply to those who are enrolled in Catch-Up, which permits participants who are within three calendar years of normal retirement age to defer up to twice the normal contribution limit for three consecutive years, as long as the participant had under-contributed prior eligible years.

For more information, visit our Catch-Up page or schedule an appointment with one of our Voya Local Retirement Counselors.

When does this go into effect?

This mandatory provision under the SECURE 2.0 was adopted by the Board of Deferred Compensation Administration at its June 20, 2023 meeting and is effective after December 31, 2023. However, the retirement community is requesting a delay in implementation until 2026 and is currently awaiting guidance from Congress and the U.S. Treasury Department.