When the bell dropped in Times Square last Sunday night, a bunch of new provisions from the SECURE 2.0 legislation kicked in. This article will focus on the Roth-related changes that are effective in 2024.
529-to-Roth IRA Rollovers
Under the tax rules, if funds in a section 529 plan are not used for education, the earnings are taxable and subject to a 10% penalty. This has scared many people away from funding 529 plans. As a way of relieving these fears, Congress included a provision in SECURE 2.0 that allows for rollovers of unused 529 funds to Roth IRAs. While this a worthy idea, beware of important restrictions on this new rollover rule.
No RMDs on Roth 401(k) Funds
Before 2024, one big advantage that Roth IRAs had over Roth funds in 401(k) (and other company plans) was that Roth IRA owners never have to take RMDs, but Roth 401(k) account holders did. SECURE 2.0 does away with this distinction by exempting Roth 401(k) funds from lifetime RMDs.
Keep in mind that beneficiaries of inherited Roth 401(k)s are still subject to RMDs. Also, even with this change, rolling over Roth 401(k) funds to a Roth IRA might still make sense because of more favorable Roth IRA distribution rules and a wider variety of investment options.
Mandatory Roth 401(k) Catch-Ups – DELAYED
January 1, 2024 was originally supposed to be the effective date of the SECURE 2.0 rule requiring that age-50-or-older catch-up contributions by highly-paid employees to 401(k) (and other plans) be made on a Roth basis. But, in the face of persistent complaints by recordkeepers and lobbying groups, the IRS delayed the effective date of this rule until 2026.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
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