Parkside Advisors

Independent Investment Management

Retirement Plan Changes in the SECURE 2.0 Legislation

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On December 29th, President Biden signed the SECURE 2.0 Act into law bringing changes to the retirement landscape.  While the scope of the law is broad, the new legislation impacts our clients mainly through changes to retirement plan withdrawal rules, 50 and older catch-up contributions, and new ways to add to retirement assets.

We highlight here some of the changes relevant to many of our clients:

1. Higher ages for starting Required Minimum Distributions

  • Starting in 2023, the mandatory age to begin taking Required Minimum Distributions (RMDs) increases to 73 from 72.
  • The mandatory age for RMDs will increase again in 2033 to 75.

2. Changes to catch-up (50 and older) retirement plan contributions

  • Starting in 2024, highly compensated employees must make their catch-up contributions to employer-sponsored 401(k) or 403(b) Roth accounts. This means catch-up contributions made by employees earning over $145,000 will be on an after-tax basis. Previously, catch-up contributions were tax-deferred regardless of income level. While these individuals will lose the upfront tax deferral, their Roth contributions will still benefit from tax-deferred growth and will be exempt from RMDs.
  • Employees ages 60 – 63 will be able to make larger catch-up contributions to their employer sponsored 401(k), 403(b), or 457(b) retirement plans. The new limit will be increased from $7,500 to at least $10,000 and will become effective in the 2025 tax year. The limit will depend on annual inflation and could exceed $10,000. These contributions are also subject to the highly compensated earnings threshold discussed above.

3. Excess 529 Plan funds rollovers into a Roth IRA

  • Starting in 2024, taxpayers who have maintained a 529 plan for at least 15 years will be allowed to roll over 529 plan funds to the beneficiary’s Roth IRA. Rollovers will be limited by the annual IRA contribution limit, which is currently $6,500. Taxpayers in this instance will not be subjected to Roth IRA income limitations. Aggregate lifetime rollovers from a 529 plan will be limited to $35,000 per beneficiary.  In sum, it would take six years to rollover the lifetime limit under current annual contribution limits.

4. Qualified Charitable Distributions limit to increase

  • Taxpayers over age 70.5 are eligible to make Qualified Charitable Distributions (QCDs). The QCD annual limit of $100,000 will now be indexed for inflation beginning in 2024.

5. Expansion of Roth plan options

  • Starting in 2023, employers can offer participants the option of receiving matching contributions in Roth 401(k), Roth 403(b), or Roth 457(b) accounts. Matching employer contributions applied to a Roth account would be taxable to the employee.  Before the SECURE 2.0 Act, employer matching contributions were only allowed in traditional tax-deferred accounts and not permitted for Roth retirements accounts.  Note that companies must choose to offer this as a benefit.
  • Starting in 2023 SECURE 2.0 Act allows for the creation of Roth SEP IRAs and Roth SIMPLE IRAs.

Please note that this is a selected list of items contained in the new legislation. If you have any questions regarding how these changes might affect your particular situation in 2023, please contact Parkside Advisors.

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