How The SECURE 2.0 Act May Impact Your Finances
In efforts to further improve retirement plan saving and investing, the SECURE 2.0 Act was signed into law in December 2022. We want to highlight how this act may impact your finances.
By Investment Associate Bobby Adusumilli, CFA.
In 2019, the SECURE Act was signed into law with the goal of helping people to save and invest for retirement.[1] In efforts to further improve retirement plan saving and investing, the SECURE 2.0 Act was signed into law in December 2022.[2][3] We want to highlight how this act may impact your finances.
Option For Roth Matching & Non-Elective Employer Contributions To Retirement Plans
Beginning in 2023, employer retirement plans (such as 401(k)s and 403(b)s) will be able to offer the option for employees to receive matching and non-elective employer contributions as Roth contributions, which are immediately vested. The Roth employer contributions would be added to the employee’s taxable income for that year.
It is important to recognize that this is optional for your employer, and this feature may not be available yet on your employer's retirement platform.
Increasing The Beginning Age For Required Minimum Distributions (RMDs)
Currently, owners of retirement accounts including Traditional 401(k), 403(b), 457(b), and IRA accounts are required to begin taking RMDs from these accounts starting at age 72. Based on birth year for people who have not already begun taking RMDs, the SECURE 2.0 Act changes the beginning age for RMDs to the following:
Required Roth Catch-Up Contributions For High Wage Earners For Employer Retirement Plans
Effective in 2024, for employees age 50+ who made at least $145,000 in wages (will be adjusted for inflation going forward) in the previous year from an employer, any catch-up contribution to that employer’s retirement plan must be a Roth contribution. If an employer retirement plan doesn’t offer a Roth catch-up contribution option, then catch-up contributions are not allowed for anyone for these employer retirement plans. Roth catch-up contributions do not apply for self-employed individuals, nor do they apply to IRAs such as SIMPLE IRAs.
Higher Catch-Up Limits For Employer Retirement Plans For Participants Age 60-63
Currently for employer retirement plans, participants age 50+ may make catch-up contributions of $7,500 to a 401(k) or 403(b), or $3,500 for SIMPLE IRAs. Starting in 2025, individuals age 60-63 will have the ability to make larger catch-up contributions. For a 401(k) and 403(b), the annual catch-up contribution limit for people age 60-63 will increase to the greater of $10,000 or 150% of the regular catch-up amount for 2024. For a SIMPLE IRA, the annual catch-up contribution limit for people age 60-63 will increase to the greater of $5,000 or 150% of the regular catch-up amount for 2025. These catch-up contribution limits will be indexed for inflation beginning in 2026.
Ability To Offer Roth Option For SIMPLE IRA & SEP IRA Plans Beginning In 2023
Limited Ability To Transfer A 529 Balance To A Roth IRA
Starting in 2024, a 529 plan beneficiary whose account has existed for at least 15 years may be able to use their balance to make Roth IRA contributions cumulatively up to $35,000 throughout their lifetime, subject to conditions.
Annually, the total amount you contribute to a Roth IRA - both via money earned as well as through a 529 account - cannot exceed the Roth IRA contribution limits.
You must have earned at least corresponding income within the year to contribute 529 account money to your Roth IRA.
Any contributions and associated earnings made to the 529 account within the previous five years are ineligible to be transferred to a Roth IRA.
This aspect of the SECURE 2.0 Act is complicated, and we expect further rule clarifications in the future.
Employer Matches For Student Loan Payments
Effective in 2024, employers will be able to to offer employer matches for eligible federal student loan payments made by participants. The student loan payments will be treated as salary deferrals for vesting and matching purposes.
It should be noted that this is an option for employers, but not an obligation.
For IRAs, The Catch-Up Limit As Well As Qualified Charitable Distributions (QCDs) From Traditional IRAs Will Be Indexed To Inflation Starting In 2024
As always, if you would like to discuss how the SECURE 2.0 Act may impact you and your family, please reach out to us.
Important Disclosure Information & Sources:
[1] “H.R.1994 - Setting Every Community Up for Retirement Enhancement Act of 2019". United States Congress, 2019, congress.gov.
[2] “SECURE 2.0 Act of 2022". United States Senate Committee on Finance, 19-Dec-2022, finance.senate.gov.
[3] “SECURE Act 2.0: Later RMDs, 529-to-Roth Rollovers, And Other Tax Planning Opportunities“. Jeffrey Levine, 28-Dec-2022, kitces.com..
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice.
Hyperlinks to third-party information are provided as a convenience.
Pension Plan Options For Small Business Owners
To help you differentiate among the most commonly adopted pension plans by small businesses, we provide this resource.
By Senior Advisor Andrew Schaetzke, CFP®.
For many people, retirement plans, pension plans, and Social Security serve as their primary means for income during retirement. As a small business owner, the specific plans that you offer within your business can dramatically improve the financial behaviors and long-term investment results of your colleagues.[1]
While defined-benefit pension plans were very popular through the 1970s, only 15% of private-sector workers are offered defined-benefit pension plans through their employers today.[2] Nevertheless, when implemented well, pension plans can still be a potentially cost-effective way to help employees have more income in retirement.
To help you differentiate among the most commonly adopted pension plans by small businesses, we provide the below resource. From this, you may come away with answers and action items for the following:
Who can participate in the pension plan?
Can employees contribute to the plan?
How and when are benefits paid?
What are the possible vesting schedules?
As always, we are here to help you evaluate the best pension plan for your business. Please feel free to reach out to us if you have any questions.
Please click on the below images to view.
Important Disclosure Information & Sources:
[1] “Nudge: The Final Edition“. Richard Thaler & Cass Sunstein, 2021, Penguin Books.
[2] “The Demise of the Defined-Benefit Plan“. James McWhinney, 18-Dec-2021, investopedia.com.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal professional or tax professional for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
2022 IRS Changes - Retirement Plans and Social Security
To help you plan for 2022, we provide this information regarding limits, thresholds, and changes for retirement plans and Social Security.
By Senior Advisor Andrew Schaetzke, CFP®.
Every year, the Internal Revenue Service (IRS) updates dollar contribution limits and other aspects of defined contribution plans like 401(k)s, tax-qualified defined benefit plans, and Social Security. Particularly with the rise in inflation this year, some of the dollar limits have gone up significantly more than in years past.[1][2]
To help you plan for 2022, we provide the below information regarding limits, thresholds, and changes for these retirement plans and Social Security.[1][3] Additionally, we are actively monitoring other legislation making its way through Congress, particularly relating to President Biden’s Build Back Better Framework.[4] As legislative bills become law, we will provide you with more important updates.
401(k), 403(b), 457(b), ESOP, Profit-Sharing Plans
Traditional IRA / Roth IRA
Defined Benefits Plan
Social Security
Estate and Gift Taxes
Important Disclosure Information & Sources:
[1] “2022 Limitations Adjusted as Provided in Section 415(d), etc.“. IRS, irs.gov.
[2] “Consumer Price Index for All Urban Consumers: All Items in U.S. City Average“. Federal Reserve Bank of St. Louis, stlouisfed.org.
[3] “2022 IRS Plan Limits“. Newport Group, 04-Nov-2021, newportgroup.com.
[4] “The Build Back Better Framework“. The White House, whitehouse.gov.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Retirement Plan Options For Business Owners
To help you differentiate between the most commonly adopted retirement plans by small businesses, we provide this resource.
By SJS Investment Services Founder & CEO Scott Savage.
For many people, retirement plans serve as their primary means for growing wealth throughout their lives. As a business owner, the specific retirement plan and features that you choose for your business can dramatically improve the financial behaviors and long-term investment results of your colleagues.[1] Additionally, because there are many retirement plan options for you to choose from, you can select the retirement plan that is most appropriate for your business from an operational and cost perspective while also still providing the features that most benefit your team.
To help you differentiate between the most commonly adopted retirement plans by small businesses, we provide the below resource. From this, you may come away with answers and action items for the following:
Which employees can participate in the retirement plan?
How much can each employee as well as the employer contribute to the plan each year?
Does the plan allow for Roth contributions?
What are the regulatory and compliance requirements for the plan?
Can we create a vesting schedule for employer contributions?
As always, we are here to help you evaluate the best retirement plan for your business. Please feel free to reach out to us if you have any questions.
Important Disclosure Information & Sources:
[1] “Nudge: The Final Edition“. Richard Thaler & Cass Sunstein, 2021, Penguin Books.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal professional or tax professional for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.