At the end of 2022 and early 2023, there was plenty of buzz surrounding the omnibus spending legislation more commonly known as SECURE 2.0, which provided a number of new opportunities. Many of the opportunities will be effective beginning in 2024. Below we have outlined some of the major changes that may impact the individuals and families we work with. For a quick overview of the items covered in the bill, consider reading our previous article on SECURE 2.0.
Mandatory Roth Catch-Ups in Retirement Plans:
- If you are self-employed and making contributions to a 401(k), you will be exempt from the Roth catch-up requirements.
- If you are currently making traditional catch-up contributions, it is important to note that on your 2024 taxes this will be a change, as the catch-up contribution will no longer be pre-tax (or tax-deferred) and you’ll be taxed on the Roth catch-up contribution amount.
- Note that this provision is not applicable to Traditional IRAs, SEP IRAs, and SIMPLE IRAs.
529 to Roth Account Conversions:
- Beginning in 2024, the owner of a 529 plan will have the option to convert portions of the 529 plan to a Roth IRA. This allows for potential avoidance of the 10% penalty and ordinary income tax on funds distributed from a 529 to the owner or beneficiary of the account for non-qualified expenses.
- Here are the requirements for converting 529 plan assets:
- The Roth IRA owner must match the beneficiary of the 529 plan.
- The 529 plan must have been maintained for at least 15 years.
- Any contributions made within the last five (5) years and the earnings attributed to these contributions are ineligible for conversion.
- Conversions to the Roth IRA are subject to annual contribution limits (for those under 50 in 2023, the limit is $6,500).
- Conversions are not subject to income limits.
Employer Matching for Student Loan Payments:
- Beginning in 2024, companies will be able to offer a “match” for eligible student loan payments into retirement plan accounts of individual employees. The match offered for student loans will be required to follow the same vesting schedule and match amounts as those who are only deferring into a retirement plan. Eligible plans include: 401(k), 403(b), 457(b) and SIMPLE IRA’s.
- Much is still unclear about how companies will determine what an “eligible” student loan payment looks like.
- Plan sponsors will likely find this to be an attractive offering as employees are required to certify payments annually and plan sponsors are not required to conduct independent reviews.
Qualified Charitable Distribution Amount Indexed for Inflation:
- Beginning in 2024, the annual qualified charitable distribution (QCD) amount will be annually indexed for inflation. In 2023, the maximum amount you can donate from an IRA, free of taxes, is $100,000 per person (over the age of 70.5).
If you have any questions about how SECURE 2.0 impacts your situation, please do not hesitate to reach out to your JNBA team.
The above is intended as a high-level summary of some of the Act’s key provisions. Please note JNBA is neither an accountant nor an attorney and no portion of the above should be construed as accounting or legal advice. All legal and accounting issues should be addressed with a legal or accounting professional of your choosing.
Due to various factors, including changing market conditions and/or applicable laws, some of the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors.
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