Regulations and Numbers

Today is Justin’s birthday, so as a gift I’m taking over the monthly letter duties this time around in hopes of giving him a bit of a break. Unfortunately for you all, that means less talk of markets and investments and more talk of compliance, regulations, and tax numbers. But, I’ll try to keep it relatively short and simple!

First, I’m sure most of you have seen or heard talk about the SECURE Act 2.0. The original SECURE Act was passed in 2019, and the 2.0 version was signed into law at the end of 2022. SECURE stands for Setting Every Community Up for Retirement Enhancement, and the main goals of the new regulations are to encourage people to save for retirement and to make retirement plans easier for employers to create and manage. SECURE 2.0 has many many provisions, and I wouldn’t be able to list them all out in a letter, or at least not in a letter anyone would want to read. But, I do want to mention some provisions that may apply to you or to someone in your family.

First, the starting age for required minimum distributions (RMDs) from IRA accounts is changing yet again. It is now 73, and in 2033 it will change to age 75. Those of you who have already started RMDs must continue taking them annually as usual, but those who haven’t will be able to put them off a little longer. If you were born in 1951-59, you’ll begin them at 73, and if you were born in 1960 or later, you’ll begin at 75.

Second, there have been some changes to catch-up contributions for IRAs and retirement plans. In 2024, the IRA catch-up contribution for those aged 50+ will be indexed to inflation, so it will begin to increase each year. Also, beginning in 2025, those contributing to an employer plan like a 401(k) and who are aged 60-63 will be able to do a catch-up contribution of 150% of the regular plan catch-up amount. Lastly, if your income is over $145,000, catch-up contributions to employer retirement plans must now be on a Roth basis.

Speaking of Roths, there are several regulations in SECURE 2.0 that involve them. For one, employers will now be able to put retirement plan matching contributions into a Roth option. If this is done, the amount would be included in the employee’s income. Second, RMDs have never been required from Roth IRAs, and beginning in 2024 they will no longer be required from Roth 401(k)s. Third, there is now an option to do a rollover from a 529 plan into a Roth IRA in the name of the 529 plan beneficiary. However, there are many rules that must be followed when doing this. The 529 plan must be 15 years old, and rollover amounts are subject to the annual IRA contribution limits (currently $6,500 in aggregate across all IRA accounts). Likewise, the 529 beneficiary/Roth IRA owner must have earned income. Also, there is a lifetime 529 to Roth IRA rollover limit of $35,000.

Finally, I’ll mention a few regulations that may be more applicable to younger generations. First, starting in 2024, employers will be able to “match” employee student loan payments. In other words, they will be able to put their employer matching contribution into a retirement plan for the employee on the basis of student loan payments the employee has made, even if the employee is not currently contributing to the retirement plan. Second, beginning in 2025, any new 401(k) or 403(b) plans must automatically enroll employees with a contribution of at least 3%, and this must be increased by 1% annually, up to 10-15%. Of course, employees can choose to opt-out, and there are exceptions, such as for companies with less than 10 employees. Finally, there is a new exception to the 10% penalty for IRA withdrawals taken prior to age 59 ½ which is very broad. Up to $1,000 per year can be taken for a personal emergency. However, after the first emergency withdrawal is taken, there are restrictions for subsequent withdrawals.

If you have questions about any of these SECURE 2.0 Act regulations or any others you hear about, please feel free to contact us.

A happy February to you all,

Libby