By Andy Ives, CFP®, AIF®
IRA Analyst
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My biggest gripe with legislation is the same complaint held by most – the bulk of it is written in legalese – i.e., difficult-to-understand language. I am no idiot, but sometimes I sure feel dumb when I read things like the SECURE Act. My eyes glaze over and I ask myself, “What the heck did I just read?” While I proudly carry the CFP® designation and have over 25 years of experience in the financial services industry, I have no formal legal training. Thankfully, I work with a couple of experienced attorneys who can recuse me if I flounder.

I understand that financial advisors are on the front lines, speaking directly with clients. I also understand that advisors must earn and retain their client’s confidence. A string of poor guidance or incorrect answers can end a relationship quickly. We are all trying to make sense of the newest IRA rules. So, as advisor questions come in about the SECURE Act, SECURE 2.0 and the tax code, I get it when they ask, “Where does it say that?” Advisors want to present concrete evidence as to why a decision is being made or what rules apply in tricky situations.

But the “Where does it say that?” question is not an easy one. Here is a prime example…

If a person makes an excess contribution to their IRA, it must be corrected. (Examples of excess IRA contributions include contributions that exceed the maximum annual contribution dollar limit for the year, and rolling over an amount that isn’t eligible for rollover – like a required minimum distribution.) However, an excess contribution may not be fixed by simply removing the amount of the excess. The excess, plus or minus the earnings (what the IRS calls the “net income attributable,” or “NIA”) must be removed by October 15th of the year after the year for which the contribution was made. If the excess is not timely corrected by the October 15 deadline, then the 6% penalty applies each year the amount remains in the account as of December 31. After the October 15 deadline, only the excess amount needs to be withdrawn.

Prior to SECURE 2.0, if a person under age 59 ½ made an excess contribution fix before the October deadline, the earnings (the NIA) was taxable AND subject to a 10% penalty. This 10% penalty on the NIA was eliminated by SECURE 2.0. But where does it say that in the law?


(a) IN GENERAL.—Subparagraph (A) of section 72(t)(2) is amended –

     (1) by striking ‘‘or’’ at the end of clause (vii);

     (2) by striking the period at the end of clause (viii) and inserting ‘‘, or’’; and

     (3) by inserting after clause (viii) the following new clause:

          ‘‘(ix) attributable to withdrawal of net income attributable to a contribution which is distributed pursuant to section    408(d)(4).’’

Minus the effective date clause, this is the entire section – hidden within the 340+ pages of SECURE 2.0 – eliminating the 10% penalty on NIA. Clear as mud? You can read it again – but it probably won’t help. Only by overlaying Section 333 from SECURE 2.0 onto the tax code can one deduce what is happening. So, if you ask me, “Where does it say that?” – I have a hunch what tangled mess lies ahead. Please forgive me if I hesitate and squirm and hem and haw.