I know portions of the legislation have already been discussed in other threads, but I thought a consolidated thread discussing the retirement account impacts would be useful. The 529 to IRA rollover is most helpful from my place in life. Also, we currently have a SIMPLE plan (though likely moving to 401k), so I like the Roth option. I wish they would lighten up on the "nondiscrimination" testing and income limits in general (and cut out all the other pork), but I'll take what I can get.
https://www.cnbc.com/2022/12/23/secure-2point0-clears-congress-will-bring-changes-to-retirement-system.htmlQuote:
Requiring automatic 401(k) enrollment: Employers would be required to automatically enroll employees in their 401(k) plan at a rate of least 3% but not more than 10%. Businesses with 10 or fewer workers and new companies in business for less than three years are among those that would be excluded from the mandate.
Increasing the age when RMDs would need to start: The current bill would increase it from age 72 to age 73 in 2023 and then to age 75 in 2033. Additionally, the penalty for failing to take RMDs would be reduced to 25%, and in some cases, 10%, from the current 50%.
Creating bigger "catch-up" contributions for older retirement savers: Under current law, you can put an extra $6,500 annually in your 401(k) once you reach age 50. Secure 2.0 would increase the limit to $10,000 (or 50% more than the regular catch-up amount) starting in 2025 for savers ages 60 to 63. Catch-up amounts also would be indexed for inflation. Additionally, all catch-up contributions will be subject to Roth treatment (i.e., not pretax) except for workers who earn $145,000 or less.
Broadening employer 401(k) match options: A proposal would make it easier for employers to make contributions to 401(k) plans on behalf of employees paying student loans instead of saving for retirement.
Improving worker access to emergency savings: One provision would let employees withdraw up to $1,000 from their retirement account for emergency expenses without having to pay the typical 10% tax penalty for early withdrawal if they are under age 59. Companies also could let workers set up an emergency savings account through automatic payroll deductions, with a cap of $2,500.
Increasing part-time workers' access to retirement accounts: The original Secure Act made it so part-time workers who book between 500 and 999 hours for three consecutive years could be eligible for their company's 401(k). Secure 2.0 reduces that to two years. Companies already have been required to grant eligibility to employees who work at least 1,000 hours in a year.
Boosting how much can be put in a qualified longevity annuity contract: Currently, the maximum that can go into a QLAC is either $135,000 or 25% of the value of your retirement accounts, whichever is less. Secure 2.0 eliminates the 25% cap and increases the maximum amount allowed in a QLAC to $200,000.
Creating a federal matching contribution for lower-income retirement savers: An existing tax credit for low- and moderate-income individuals who contribute to retirement accounts would become a limited government-funded matching contribution.
Changing the required minimum distribution rules for Roth 401(k)s: Currently, while Roth IRAs come with no RMDs during the original account owner's life, that's not the case for Roth 401(k)s. Starting in 2024, the pre-death distribution requirement would be eliminated.
Broadening uses for unused college savings money: A provision would allow for tax- and penalty-free rollovers to Roth IRAs from 529 college savings accounts that are at least 15 years old, within limits.
Helping military spouses get access to retirement plans: Secure 2.0 creates tax credits for small businesses that let military spouses enroll right away in their plan and qualify for immediate vesting of any employer matches.
The bill also includes incentives for small businesses to set up retirement savings plans for their workers, encourages individuals to set aside long-term savings and makes it easier for annuities to be an income option for retirees.
https://www.forbes.com/sites/jamiehopkins/2022/12/22/the-secure-20-acts-impact-on-roth-iras/?sh=d7bdfe845170Quote:
Section 601: SIMPLE and SEP Roth IRAs
Currently SIMPLE IRAs and SEP IRAs do not allow for Roth contributions. The bill would change this, allowing for SIMPLE Plans to accept Roth employee contributions. Additionally, the bill would allow SEP IRAs to offer employees the ability to treat SEP contributions as Roth. The SIMPLE and SEP plans would have to decide to offer this feature as it is not automatic. My rating of this provision, which would go into effect in 2023, is positive. This allows employees to get Roth tax treatment inside of SEP and SIMPLE IRAs. This makes sense because there are often starter plans for small companies and for employees not making a lot of income yet. As such, their tax liability might be low at that time and people would benefit more from a Roth account than a tax-deferred account. It also provides better flexibility.
Section 604: Employer Matching can be Roth or Pre-Tax
The bill will allow employers to let participants in 401(k), 403(b), and governmental 457(b) plans to get matching contributions on a Roth basis. It doesn't require plans to offer this but creates it as an option. My rating of this provision, which goes into effect in 2023, is positive. It allows for matching contributions to go into a Roth account. This can make sense for many lower-income employees that don't benefit that much from tax deferral, especially early in their career. Roth tax treatment gives them a better overall tax outcome. Because this is at the direction of the employee, it gives additional savings and tax management flexibility.
