• SECURE Act 2.0: Roth Changes

    A desktop with a piggy bank and three sticky notes that say "IRA", "ROTH" and "401(k)
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     In 2019, the  Setting Every Community Up for Retirement Enhancement (SECURE) Act changed some of the rules surrounding retirement savings to help individuals gain more access their savings. In late 2022, SECURE Act 2.0 was signed into law with major updates related to retirement and savings. It’s designed to help Americans prepare for retirement by creating more opportunities for saving and flexibility for spending.  Since ROTH accounts are a common savings vehicle, they were impacted quite a bit by SECURE and now SECURE 2.0.

    Increase in ROTH Catch-Up Contributions

    Beginning for all tax years after 12/31/23, all catch-up contributions to qualified retirement plans are  subject to Roth tax treatment if the employee’s compensation is more than $145,000. 

    The way catch-up contributions worked in the past is that 401(k) participants who are age 50 and older can add up to $7,500 extra money into their 401(k), which is taxed when the money is withdrawn, or into a Roth 401(k), which is taxed when the money is put in. 

    Now, under SECURE 2.0, high-income earners are limited to only making their catch-up amounts into a ROTH. That means instead of being taxed LATER when  income is likely lower, catch-up amounts must be categorized as a ROTH contribution. 

     

    Roth Catch-up rules

    Expansion of ROTH Capabilites

    There are a few other changes SECURE 2.0 has put in place to make saving and using a ROTH a more accessible savings options for many taxpayers. Scroll over the icons below to see an overview of these changes.

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    Employer Matching

    Employers can now provide employees the option of receiving matching contributions to Roth accounts. Now, these contributions are made after-tax, and earnings can grow tax-free.

    Previously, matching in employer-sponsored plans were made on a pre-tax basis.
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    Unused 529 into Roth

    he new SECURE 2.0 provisions allow unused 529 funds to be rolled over into a Roth IRA starting in 2024, which means that they can now be used for retirement and not just college.
    Read More
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    SIMPLE/SEP

    Before SECURE 2.0, SIMPLE IRAs and SEP IRAs could only accept pre-tax funds. Now, for tax years starting in 2023, both SEP and SIMPLE IRAs can offer a Roth options.
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    Special Needs Trust

    If the account owner set up a Special Needs Trust, the beneficiary may receive lifetime distributions after the account owner's death. The trust may also provide for a charitable organization as the remainder beneficiary.

    A more common way many employees save is through a 401(k) plan, which also has several new rules. If you’re interested in learning more about ways use these changes to create a more strategic approach to your savings, let’s set up a meeting.

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    Chris VanArsdale

    Chris is a Strategic Analyst who maintains expertise in litigation support, international taxation, and complex entity and fiduciary taxation services.

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