New Changes in Secure Act 2.0

Submitted by Kevin O'Hearn on Tue, 2023-01-17 17:03

Hello,

One of the new changes in SECURE Act 2.0 relates to the statute of limitations on penalties associated with RMD shortfalls and excess contribution penalties. I was not aware statute of limitations existed for these. Can you confirm that I am understanding the changes moving forward:

The statute of limitations begins with the filing of the tax return the shortfall or excess occurred in. Its 3 years for RMD shortfalls and 6 years for excess contribution penalties.

• So if a client misses an RMD, but never notifies the IRS, they are off the hook for the penalty 3 years after filing their return for the year of the shortfall?

• In the same scenario with an excess contribution, they are off the hook after 6 years?

• If yes, do you know if this change would apply retroactively to RMD shortfalls and excess contributions that occurred prior to SECURE Act passing? For examples, errors that occurred in 2019 and 2020?

Thank you.



Submitted by Alan - IRA critic on Tue, 2023-01-17 17:45

  • Correct on your first two points. As to retroactivity to income tax returns filed prior to enactment, I think the IRS is going to have to clarify that.
  • If an incorrectly completed Form 5329 is filed to determine the excess contribution 6% penalty, the 3 year SOL for that form may expire prior to the 6 year SOL for Form 1040. I expect that the first SOL to expire would govern in that situation. Sec 313 states that the SOL “includes” Form 1040 filing which means that Form 5329 filings also trigger their own SOL. Since the 5329 carries forward PY excess amounts in a cumulative manner, there could be gray areas as to the SOL for each particular prior year.

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