In my newsletter last month, I talked about some of the changes and confusion around new distribution rules for Inherited IRAs and promised this month I would share a few other changes of the SECURE Act 2.0 (Setting Every Community Up for Retirement Enhancement).
With some 90+ changes that pertain to individuals, employers, trusts and estates, it is a lot to keep straight, but here I’ve summarized 5 that may affect you:
1. Employer Match can now be made to a Roth account (Section 604)
Your employer “may” (but is not required) to allow an employee to elect a matching Roth contribution, versus past law which has required all matching contributions be made to a pre-tax account on behalf of the employee.
2. “Catch up” contributions for certain employees MUST be made to a Roth (Section 603)
Catch up contributions by those age 50+ can currently go to either a pre-tax account (and thus lower an employee’s taxable income) or to a Roth, or to a combination of both if the employee chooses.
Beginning in 2024, employees whose income is over $145,000 will only be able to elect Roth contributions for the catch up portion.
3. Student loan payments treated as elective deferrals for employer match (Section 110)
Beginning in 2024, employers are allowed to treat student loan payments as if they were an employee’s contributions to their retirement plan.
Consider for example an employee who is not making 401(k) (or other employer plan) contributions because they are saddled with monthly student loan payments, thus missing out on the “free money” they could be getting through an employer matching contribution.
With the new ruling, whatever loan payment they are making on a monthly basis can now be matched, according to their employer plan matching rules, even if they are not directly contributing to the plan.
4. Increased age for Required Minimum Distributions (Section 107)
The first version of the SECURE Act raised the age to 72. It has now been raised again to age 73 and then to age 75 beginning January 2033.
Here is a breakdown by year of birth:
1950 or before: No change
1951 – 1959: Age 73
1960 and later: Age 75
5. Reduction in penalty for failure to take timely RMD (Section 302)
Through 2022, the penalty was 50% of the required amount that you failed to take. Beginning in 2023, the penalty has been reduced to 25% and can be further reduced to 10% if corrected “in a timely manner”. The proper tax form must be completed.
For anyone interested in delving further into some of the changes, here is a link to a 19-page “summary” from the senate finance committee.
Happy reading – just don’t try to memorize.
The women of today are the thoughts of their mothers and grandmothers, embodied and made alive. They are active, capable, determined and bound to win. They have one-thousand generations back of them …. Millions of women dead and gone are speaking through us today.
– Matilda Joslyn Gage