January 9th, 2023
Well, what is being called the SECURE 2.0 Act was just signed into law as part of a larger 4,000 page Omnibus bill, so we wanted to update you with the highlighted changes most likely to matter to you that are included.
Highlights:
- Required Minimum Distributions (RMD) age raised to 73 starting in 2024 (for those turning 72 in 2023), and increasing to 75 in 2033. This will be an added year to delay the forced distributions, and in 10 years we get another 2 years to delay. This will not affect the ability to due qualified charitable distributions (QCD) as they are still an option after 70.5.
- RMD penalty lowered to 25% (from 50%), and as low as 10% if corrected in a “timely manner”… didn’t look at the fine print for the definition of “timely” yet but hopefully this will never apply to you.
- Roth 401k RMDs are no longer required. Though this affected a small number of you, it is nice that the 401k and IRA rules are in line that no RMDs are required, until they are inherited. This goes into effect in 2024.
- Roth 401k matching options now available in eligible plans. Prior to this change, employer matching was done in pre-tax dollars, even if the employee was doing Roth deferrals. Now, the employer can allow employees to choose if they would want their match pre-tax or Roth.
- 401k catch up contributions get a bump: Those aged 60-63 can put in an additional $2500 in over the 2023 catch up max of $7500 (up from $6500 in 2022). This will go into effect in 2025. However, one little caveat here is that this extra 2500 must be designated after tax (Roth) if income is over 145k/yr.
- IRA catch up amounts ($1000 currently) get an inflation adjustment annually starting in 2024.
- 401k automated features: all new employees will be automatically enrolled at 3% deferral rate and increased 1% annually until they reach 10%. They can of course do more than this, this is just an automated default. Also, if no longer an employee at a company the new maximum for automated transfer to an IRA at the same management company is 7k (up from 5k). Takes effect 2024.
- Student Loan help: Employers can choose to match employees’ student loan payments with contributions to their 401k. This will require some setting up so will start in 2024.
- New distribution rules for 401ks: Hardship rules have existed, now 403b accounts will also allow for this as 401ks have, and as of this new ruling participants can get to $1k of their retirement account penalty free. However, a new “account” will exist alongside these employer sponsored retired plans known as an emergency savings account. For employers participating in this, up to $2500 of deferrals in cash could be placed here, after-tax, to be available penalty and tax free. Employer must match contributions to the emergency savings account in 401k.
- 529 change: 529s that have been in place for at least 15 years can be rolled into a Roth account for the beneficiary, using the ordinary contribution rules (can contribute up to annual maximum and total lifetime of 35k per beneficiary). Goes into effect in 2024. This may wind up being a “loop hole” for future Roth money as income limits do not apply to the transfer from 529 to Roth unless they address this issue.
Let us know if you have questions on any of these or want to discuss as it relates to you and your plan.
Happy New Year!
Eric & Jeremy