Elean
Hello everyone. I hope you’re all doing well. My name is Elean Mendoza and I’m here with Evan Shorten, the firm’s founder and principle.

Evan
Hello everyone. I want to thank you for tuning in and listening to the podcast.

Elean
So last year we dedicated a few episodes to discussing the major changes congress passed in the SECUARE Act 2.0. Some items have gone into effect for 2024 and other items had to be delayed due to lack of available infrastructure. In this episode we’re going to discuss a few major changes taking effect this year and one of the biggest changes which is being delayed until 2026.

So let’s get started. The first major change taking effect this year, Roth 401(k)s and Roth 403(b)s will no longer be subject to required minimum distributions starting in 2024.

Evan
This may not be known to a lot of people since Roth 401k and 403b are not that common in work places, but Roth 401k and Roth 403B followed similar distribution rules to their non-Roth counterparts.  However this was an odd rule as Roth IRAs don’t have required minimum distributions due to being funded after you have already paid taxes.  The SECURE Act 2.0 now brings employer-sponsored Roth accounts in line with the RMD rules of their Roth IRA counterparts. In other words, RMDs will no longer be required moving forward.

Elean
A second major change taking effect in 2024 are increases in contribution limits for retirement accounts along with the catchup contribution limits available to older retirees. 

Evan
Yes, the contribution limit for employees who have 401k, 403b, 457 plans, and federal government thrift savings plans goes up to $23,000 up from $22,500 last year. Additionally the contribution limit for traditional and Roth IRAs increase to $7,000 up from $6,500. Where things start to get interesting is in changes made to how catchup contributions will work moving forward.

For starters, the catchup contribution limits for 2024 will remain the same as last year. Individuals aged 50 and older may contribute an additional $7,500 to their 401k, 403b, 457, plans and an additional $1,000 to their IRAs. However, the big change moving forward is that catchup contributions will be indexed to inflation. However, please keep in mind, 2024 is the starting year of the new rules change so any inflation adjustments to catchup contributions would not be seen until 2025.

Lastly, with respects to catchup contributions. The SECURE Act 2.0 creates a new age bracket for 60 to 63 year old individuals allowing them to make super catch-up contributions of $10,000 or 50% more than the regular catch-up contribution amount – whichever is greater. However, this portion of the SECURE Act 2.0 has been delayed until 2025.

Elean
That last item is a fairly significant change. Will the new super catch-up contributions be indexed for inflation as well? And what about individuals aged 64 and older? Will they have access to the new super catch-up contributions as well?

Evan
Good questions. The super catch-up contributions for 60 to 63 year olds will be indexed for inflation as well. However, the SECURE Act 2.0 specifically states these contribution amounts will apply to 60, 61, 62, and 63 year olds. Individuals 64 and older will revert back to the catch-up contribution limits.

Elean
Ok. Moving along to a few more changes taking effect this year, the Roth IRA phase-out limits are also being increased – and if you’re not familiar with the term “phase out,” it’s simply the maximum income you can earn while still being able to contribute to a Roth IRA.

Evan
As mentioned, the maximum IRA contribution for 2024 is $7,000 and $8,000 for those aged 50 or older. However, the income limit for how much you can earn while still being allowed to contribute to a Roth IRA is increasing from $153,000 to $161,000 of your modified adjusted gross income.

For couples who are married and file taxes jointly, their income limit are increased from $228,000 to $240,000 of their modified adjust gross income.

Elean
If you’re not sure what modified adjusted gross income is, we encourage you to reach out to us. We’d be more than happy to answer any of your questions. It’s just that for purposes of this podcast, a discussion of adjusted gross income vs. modified adjust gross income, would probably put most listeners to sleep.

Evan
Also, please keep in mind, just because you can’t make contributions to a Roth IRA directly, you can still indirectly contribute to a Roth IRA via a backdoor Roth. Essentially, almost anyone can setup and fund a tax-free retirement account, it just may take an extra step for higher income earners. Again, that conversation is outside the scope of this episode, but please don’t hesitate to reach out to us, we would be more than happy to answer any questions.

Elean
Another major law change that took effect this year is the creation of the new 529-to-Roth IRA rollover. This is probably one of the biggest rule changes with respects to 529 plans, and for many families, makes the 529 plan the best way to save for college.

Evan
One of the biggest inconveniences of 529 plans has always been over funding. Beneficiaries who finish their schooling with excess funds left in the 529 plan have had very little options to access those excess funds and often times accessing the funds came with a 10% penalty.

The SECURE Act 2.0 now establishes the ability for the beneficiary to rollover excess funds from a 529 plan into a Roth IRA in their name. There are a few requirements however so let’s briefly go over them:

• 529 to Roth IRA rollovers can only be made to a Roth IRA belonging to the same beneficiary, not the account owner who opened or may have contributed to the 529 plan.
• Roth IRA contribution limits still apply and 529 to Roth rollovers have to fall within those limits. In other words, the beneficiary can only rollover up to $7,000 in 2024 assuming no other contributions are made in the same year.
• There is a lifetime maximum of $35,000 per beneficiary that can be rolled over into a Roth IRA from a 529 plan. Any amounts in excess of that $35,000 lifetime limit are not eligible for 529 to Roth rollovers.
• The 529 Plan must have been opened for the beneficiary a minimum of 15 years before the funds can be rolled over into a Roth IRA. If you change the beneficiary of the 529 plan, the 15 year counter resets. So keep in mind, this new law isn’t a work around to make additional Roth contributions or to skirt around contribution limits.
• Lastly, any money that’s rolled into a Roth from a 529 plan must have been in the 529 plan for at least five years. In other words, any recent contributions made into a 529 plan can’t be rolled into a Roth until that contribution has sat in the 529 plan a minimum of five years.

One thing I want to mention briefly regarding the 15 year rule. The IRS has not yet provided guidance, nor have we been able to verify with our custodian, what happens if the account is moved from one plan to another within those 15 years. For example, if you moved the 529 plan from the state of California’s plan to the state of Arkansas’ plan. We still have not yet been provided proper guidance on minute details.

Elean
Essentially, if you’ve have had the same 529 plan for the last 15 years and you want to convert plan assets to Roth, it may be a good time to do. If you haven’t had the same plan for the last 15 years, it may be best to hold off until more details are given by the IRS.

Evan
Yes, for now that may be the most prudent way to go about it.

Elean
Ok. Lastly, there was one major change contained within the SECURE Act 2.0 that we want to discuss, but this is law doesn’t go into effect until 2026 as the appropriate infrastructure doesn’t exist to support it yet.

Evan
With respects to catch-up contributions in employer sponsored retirement accounts such as 401(k)s and 403(B)s, if you earned more than $145,000 in the prior calendar year, all your catch-up contributions must be made to Roth accounts using after-tax dollars. Additionally, this income threshold is going to be indexed for inflation. However, like Elean mentioned, this law has been postponed until 2026 because many employers and brokerage firms still don’t offer Roth 401(k) options. In other words, the industry has to catch-up to the new rules.

Elean
The SECURE Act 2.0 is comprised of 19 pages of rule changes to retirement account, retirement savings, and retirement distributions. We certainly didn’t cover the entire SECURE Act in this episode but rather focused on the larger items affecting the majority of our listeners. The reality is most of the rule changes affect specific situations and specific retirement scenarios that affect our listeners on a case-by-case basis. If you’d like to discuss how the SECURE Act 2.0 might affect your personal situation, please don’t hesitate to reach out.

In the meantime, please subscribe to the podcast on the Apple Podcasts App, Spotify, or YouTube.